Late Cycle

Category: The Party that would Never End

As the Decline continues, a manic optimism that verges into delusion takes hold.

  • The Mirage and a Tale of Two Economies

    Chart from Creative Planning (investment manager)

    This graph (recently created by Creative Planning) sums up the current state of affairs. The stock market is at all-time highs, and as such appears to reflect a vibrant, even red-hot economy. Meanwhile surveys, such as that by the University of Michigan, along with less-publicized stats and a blizzard of anecdotal evidence (such as can be found on social media), point to an economy in which a substantial portion of the population is at best struggling to keep their head above water in an economy beset by rising and increasingly overwhelming costs as well as other challenges. Record highs… and lows.

    This situation is captured by the term “K-shaped economy,” leading to the famous quote by Charles Dickens found in the first sentence in A Tale of Two Cities. It was the best of times: a fantasy economy built on hype/speculation and what amounts to be a hope for miracles (AI)… as well as a ton of debt. The “real” economy meanwhile shows signs of a slowdown and widening cracks (including fallout from that shitload of debt). The mainstream stories deflect from reality with presentation of metrics that prop up an optimistic mirage narrative, that on closer inspection depict a much less rosy view of things.

    It was the best of times…

    If there is one thing that the cheerleaders love to point to is the spectacular rise of the market. The S&P 500 for instance has seen a phenomenal surge of 26% in the last 12 months. It marches up despite all sorts of headwinds, in particular the recent conflict with Iran (which triggered an elevated price of oil). Then there are the ongoing tariffs and the huge deficit. Other items include concerns over private credit and a moribund housing market, which has languished for… years. All of this met with either a shrug, or a temporary panic leading to a dip that is soon followed by a new surge. Since the onset of the Iran conflict a yo-yo behavior has occurred based on the weird performance of the OG, who has repeatedly declared a “deal” was “really close” (causing optimism with “investors” and a decline in the price of oil), only to be followed by the reality of fresh exchanges and bellicose talk from Iran (markets then dipping). The ensuing selloff would then be “saved” by renewed declarations of a deal close at hand, sending stocks up again. Rinse and repeat. But some slack could be given to these “investors” who, to be charitable, were distracted: the largest IPO in history was looming! History was going to be made… Update: has been made, as at the time of writing the IPO has indeed taken place, where quite a few millionaires were minted and Elon Musk became… a trillionaire. Truly a fantastic state of affairs!

    Then there are a number of related stats that suggest the economy on the whole is doing quite well. Q1 GDP came in (initial estimate) at 2.0%, a pretty respectable reading. Employment in terms of recent BLS report also looked pretty good. In recent months there has been a “surge” in hiring, leading some to declare a “thaw” in a job market seemed to be going nowhere (no hire-no fire).

    And they’re still spending! March for example saw a 1.7% increase in real retail sales. A pretty decent number and was the fastest increase in three years.

    So why are so many down on the economy? Of course there is inflation, but then consider all that spending. The consumer, and economy, are “resilient” (a favored description). Other cheerleaders go further, such as Kevin Hassett (National Economic Council Director), who has, echoing the OG, proclaimed the great news that we are experiencing a new “golden age.” Hassett also stated that as a sign of consumer confidence “credit card spending is through the roof.” Right. Everything is just wonderful (for the majority of the population).

    It was the worst of times.

    And now comes the mass of countervailing stats and evidence. None of it hidden, just neglected, or pushed aside, in a perfect illustration of the dynamics of The Mirage. Btw, I see a combination of deliberateness and simple laziness (as to the latter – I have to wonder what the salary/income is for these reporters and commentators who hype a headline number but completely leave out the details).

    As for the stock market, a longer and deeper analysis will occur in later writing. One thing to bring up that gets to the core of the true state of the markets is breadth. As in, the markets are seeing a very narrow (and concerning) breadth. As the S&P 500 makes new all-time highs, less than 60% of components are above their 200 moving day average. Without going into technical details, this is not good. It means only a small number of stocks are behind the surge. Of course, they are all part of the AI trade. To put it succinctly, the market is fired up by a mania: the AI bubble.

    Also, it should be noted that the top 10% (income tier) holds something like 90% of all stocks (I have seen figures ranging from 88% to 93%). There is a kind of dribble in retirement plans and the like, as well as some participation by retail investors, but the majority of Americans simply are not whooping it up at The Party at the markets.

    Besides concerning details of the AI trade, including the phenomenon of “circular financing” (again, to be further discussed at a later times) which gives rise to the appearance of a kind of economic frenzy (that justifies the nosebleed valuations of the hyper-scalars), there is concern over private credit. In this sector an increasing number of investors want out, but a lot are meeting a wall in redemptions. This is occurring as some of these funds are getting into trouble over defaults.

    The spectacle of the markets appears to overshadow and deflect from the true state of the economy and the consumer:

    GDP

    That initial 2.0% growth reading has been revised down to 1.6%. Not huge but significant. This revision came in the wake of the last revision for Q4 of last year: 0.5%. The initial estimate for Q4 was 1.4%… so stayed tuned.

    Update! A second revision has it at 2.1%! Wow. No matter that along with this revision it was determined that consumer spending had… stalled.

    Labor Market

    This is supposedly a bright spot. Unemployment remains historically low at 4.3%; but don’t get too excited because one factor that is behind that decent rate is a decline in the participation rate, stemming from a steady exodus of potential workers (or those looking for work) from the workforce. In the last several months the number of new jobs has gone up – maybe not spectacular in number but enough to give an appearance of a kind of recovery. Except… the devil is in the details (again, the reporters and commentators for whatever reason don’t bother to read the report by the BLS). It turns out the majority of these new jobs are in the healthcare and leisure and hospitality sectors. The common thread of these sorts of jobs is low wages (see real wages further on).

    And then there is a lot of anecdotal evidence that can be found especially in social media. Many workers who have been laid off report difficulty finding new work, describing frustration over sending out 100s of resumes leading to few or no interviews; the long-term unemployed number has been elevated for some time. Then we hear from college graduates who in general are finding increased difficulty in landing that first job (that actually relates to their area of study – and this includes computer and technical related degrees).

    We hear of a lot of layoffs, such as from mega tech companies such as Meta and Oracle, involving 1,000s. That these are not spurious is based on mandated WARN notices. Note that many such jobs are accompanied by nice severance packages.

    Overall, the picture is mixed, or rather muddied. As of this writing it is being reported that manufacturing jobs have fallen at the fastest rate since the pandemic. Hmm, not exactly reassuring news.

    The Consumer

    • As for retail sales, most mainstream sources leave out that a large portion of recent good news numbers is based on gasoline sales. In fact, 2/3rds of the sales increase was based on elevated gas prices. Let that sink in. That is hardly the story of a “resilient” consumer.
    • Real wages – recently, has turned negative (from the BLS: real hourly earnings for all employees decreased by 0.1% from April to May)
    • Consumer debt – $18.2 trillion
    • Credit card delinquencies are marching up
    • Savings rate – rock bottom at 4% (update: 3%)
    • Many living paycheck-to-paycheck
    • Home sales – languishing
    • Warnings from CEOs of companies ranging from Home Depot to Dave and Buster’s concerning consumer behavior
    • Purchasing power – left out by most everyone most especially the Cheerleaders, but there has been a steady erosion (see the graph at the end)

    At the Edge

    Cheerleaders paint a picture of a booming economy.

    While others experience an economy that is on the edge, and even in the process of slipping into recession… or worse.

    One way to understand the contradiction that we witness is how the AI-mania is propping up the market, which then leads into the “wealth effect”: that top 10% who own the bulk of stocks appear to be doing nicely based on phenomenal stock market gains. This effect then explains why spending has seemingly held up. Namely, it has been found that approximately half of all consumer spending is from the… top 10%. So… the economy is being propped up by irrational exuberance (Greenspan) over AI and big tech, which are the basis of extremely high valuations, and of the “wealth” being enjoyed by… a relatively small segment of the population.

    Does this not sound like a house of cards? And there is a potential big problem with the preceding. It appears that instead of the stock market being reliant on the (real) economy, it’s the other way around. As the wealthy prop up spending, they are essentially propping up the economy – an economy that if AI-related activity is taken out (CAPEX) is at best barely growing.

    Another Divergence

    Here’s another image embodying two diverging tales. Diverging, but correlated. Remember, for a substantial portion of the population the decline in purchasing power is increasingly being directly felt. For the rich? Those assets are surging in value, more than compensating for the dollar’s decline.

  • Descent into Delusion – Overview

    The previous post ended up becoming quite long, so the various points and topics are being summarized here (along with some related notes).

    The trigger for this discussion is the war that the United States entered into with Iran (that some of us believe was really at the behest of Israel). We hear all sorts of bluster and boasting from a “leader” – a person who is essentially a parody of a leader – whose main accomplishment had heretofore been the host of a popular reality TV show – by itself an eye-rolling instance of unreality. His performance has been unhinged: we won the war early on, Iran wants a “deal” (akin to the bogus deals he is well known for), we’re going to take a strategic island in the Straight of Hormuz, we’re going to end the war and let others deal with Hormuz (“get your oil”), and so on. The whole performance is absolutely unreal given the posturing and spewing of bs (and falsehoods). But with all sorts of major repercussions, not least of which is the bs treatment of what had been our allies. And then you add behavior of “investors” launching into manic buying on bs pronouncements of this “leader” (bs talk of the war being at an end, even as the destruction from both sides continue).

    So following is a list of points and topics found in that previous post, all describing the myriad of elements that collectively give rise to the current miasma of unreality that envelops the empire, in roughly the same order:

    • The aforementioned unhinged performance of the “leader of the free world”
    • The portrayal of the United States no longer hearkening to a vision of a “City on the Hill,” but to a brute force to be reckoned with (before which everyone, including so-called allies, need to tremble and prostrate)
    • Bs pronouncements of our exceptionalism, that includes:
    • America’s economic might (in many ways a Potemkin economy) and
    • Military strength (we’ve been here before: we bomb the hell out of [Vietnam, Iraq, now Iran], but no decisive victory ensues (oh wait, we “won” in Venezuela, so there’s that)
    • The unreality of the situation where the greatest military on the planet seems completely on board with one person thumbing his nose at Congress, the body that should be deciding whether we go to war or not
    • Not to mention ending up looking like a plaything of the OG
    • The portrayal of the economy as exceptional – no matter the eyebrow-raising deficits, and renewal of money printing (“reserve management”) to boot
    • The bs nature of much of America’s wealth, based on intangible assets that have very indirect or even no connection to anything real (assets whose prices are largely the result of speculation – akin to betting behavior)
    • How the top tiers use this wealth to enjoy a privileged status that is completely out of reach to the majority of the population
    • The huge disparity of wealth among US households, with attendant disparity in power
    • Bs “happy talk” concerning the economy based on retail sales – leaving out that the top 10% account for approximately half of all spending (along with tons of anecdotal evidence as to how low- and most middle-income households are struggling financially)
    • The eyebrow-raising disparity between the stock market and the “real” economy
    • The “gimmicks” that prop up this “wealth machine:” stock buybacks, option trading, the “yen carry trade,” margin-based trading, as just the top examples
    • The incredible torrent of bs from the media, in all its forms, leading to a distracted and stupefied populace
    • The bs deference the media gives to celebrities (add a good portion of the population)
    • The time so many spend staring into the small screens of their “smart” phones – unable to pull away, even upon learning of the addictive nature of this technology
    • The lack of skepticism over all this technology that behind the scenes has such a major effect on our lives
    • The AI mania with belief in “miracles”

    Yeah, it’s overwhelming. You can’t blame so many wanting to find a way to shut off all this crap. But in many cases the means to do so involves… retreat into unreality.

    As an update, the OG (“leader of the free world”) is suggesting that the US will soon exit the conflict, with all kind of crap left in the wake: the fate over the Straight of Hormuz left undecided, the demonization of so-called allies (including the threat to leave NATO), the elevated price of oil, among other things. Each of which has serious repercussions.

    Here’s unreality: on the same day of the Artemis II launch the OG gives a national address concerning the war with Iran and… well, in a few weeks it will all be over (furthermore it’s all their fault – Obama, etc), and gas prices will come down! And we’ll be more prosperous than ever!

    So… we see the cracks forming in the facade… we note the accumulation of “slippage”… we hear the bs and outright falsehoods from this guy who holds the most important position in the world (our economy is going at full blast, inflation has been conquered, prices are down, the opposition are a bunch of terrorists, etc etc etc)… if we pay attention, we can feel our footing begin to slip…

    But the key phrase is “if we pay attention.”

  • Deck the Halls with Sim u la cra

    tra la la la la la la la la

    Simulacra: images or representations of something – things, people, situations (standard definition)

    Copies or representations of things (objects, people, activities, etc) that no longer has a connection to the original reality of those things (post-modern definition, i.e. Jean Baudrillard – note that in the condition of hyperreality the original reality never existed in the first place)

    Xmas

    It’s that time of the year once again! The brightly colored lights are strung out (yes, they are a welcome contrast to the long dreary nights of winter), all the fake fir boughs and so on are everywhere to be seen. Christ (er, sorry), we are essentially choking on all this… crap – not just the physical decorations (many times cheap, flimsy, and produced by overworked workers in China) but the incessant obligatory Xmas music. And the ads! Which include recent ones for Coca Cola and McDonald’s… created by AI! What better way to celebrate the largely fake sentiments that pervade/engulf the holidaze than with imagery not just created but designed by computer code… rather than crafted by actual humans.

    We’re surrounded by simulacra… assailed from all sides by platitude. The latter includes exhortations such as Hope and Joy. Joy: it is a supposed key theme of the season. But how much “joy” do you really see amid the frenzy and overwhelming hustle? It’s more like a slogan, like you might see in a propaganda poster (get in step – obey – you’re being monitored after all).

    The Christmas holiday – Xmas (a term with generic significance; drained of real emotion) – has largely become a simulation of something that no longer exists.

    A Festival of Excess

    Like many current cultural practices, especially for the United States, Christmas is a hijacking of older forms of celebration. Instances of this process (hijacking) can be found throughout history going back 1,000s of years. When Christianity took over the later Roman Empire, older (pagan) traditions were assimilated and transformed. And of course there was the Christ story, which it turns out involves a lot of hijacking. Note particularly the story of Mithras, a cosmic figure with a “virgin” birth (born from a rock, but the point is the birth was miraculous) and whose related rituals (involving sacraments and a ritual akin to baptism) entail the theme of rebirth. (Some note Mithras was a cosmic figure from the start, and not human like Jesus; yet the latter was transformed into a cosmic figure, whose life took on all manner of mythological attributes as the Christian religion evolved. Mithras was said to have been born on December 25, later taken as the birth date of Jesus.)

    In many older societies that were primarily based on agriculture, the Winter Solstice was the occasion for feasts and communal celebration. The darkest time of the year also held a promise, as the days begin to lengthen after the solstice, presaging more comfortable times ahead, and a renewal of life.

    Western Christmas is especially rooted in traditions that were celebrated by the Romans. We see an echo in the Roman festival of Saturnalia, which itself was based on rituals of pre-Roman societies that completely revolved around agriculture. Saturn being a deity that reigned over agriculture (the harvest) and time. It was a time of feasting and gift-giving. Also to note it was time of the inversion of social norms. All of this was taken by the Romans and expanded, including the lengthening of the time for the festival. Decorating homes with wreaths and other green artifacts and candles known as cerei (signifying the light that would start to wax in the wake of the solstice darkness) were part of the holiday. Of course this sounds quite familiar.

    Besides a theme of renewal, there was a subtext of plenitude (tied originally to the experience and hope of a bountiful harvest). And it’s this latter theme that came to fore in the current form of this holiday, in the hijacking of the holiday by a consumer-based/materialistic culture. (See Land of Desire for details of the birth and development of this culture – our culture.) Plenitude has become symbolized/equated to not just a profusion of things – consumer goods (and in post-modern society, experiences), but further elaborated into excess. It’s this latter theme that now dominates much of the current practice of the Christmas holiday.

    In the current situation of all of society, in which all aspects of our lives (and even life itself), have been commodified, with all practices commercialized, the ancient inspirations have been drained off, leaving… fake versions of that inspiration: simulacra.

    Simulacra that are created by companies. With one main purpose: to create an “environment” to get you to spend money. To indulge in excess – of stuff.

    And to help with this are all the means to finance all this stuff.

    The Holidaze – 2025

    They’re still spending! The “resilient” American consumer, that is. I mean, given the meager vision of life that now characterizes the bulk of the population (see Encapsulated Life), what in fuck else are most going to do, but spend (consume). On a lot of crap, especially for the kids, that ends up yielding a momentary buzz of excitement and fulfills the expectations of excess that have come to characterize American life in this phase of Decline. Many feel obligated to spend, even if they don’t have the money to do so. And then there is “emotional spending,” a term that some commentators have come up with to explain a lot of this spending. Spending to help compensate for rising anxiety, frustration, and so on. Including in relation to one’s financial situation, which for an increasing number can be summed up as “having one’s back against the wall.” For some, particularly with children, there can be fleeting joy (shared by adults) that otherwise is absent from the surrounding society.

    But to support this spending, this year especially, more households are having to use debt to keep up with all this spending. Various surveys tell similar stories, such as almost 4 in 5 (79%) of consumers say they have less than $1,000 available for this holiday season. Over half say they expect to resort to debt that they will not be able to immediately pay off (survey by Achieve, digital finance company). There have been estimates that over 90% of purchases for Black Friday and Cyber Monday were financed.

    But on an even more concerning note is the level of so-called Buy Now Pay Later debt. It is estimated by various tracking firms/agencies that just for Cyber Monday alone, over $1 billion in such debt was incurred. These firms are projecting an excess of $20 billion for all holiday spending. This debt, which though can be quite advantageous, is only so if it gets paid off as per the fine print – essentially, almost right away in a few payments. Otherwise, it becomes toxic, incurring very high interest amounts.

    Here’s the deal…

    I am not decrying some thoughtful gift giving, or enjoying a feast with family and friends. It’s the excess, and overwrought commercialization, that rubs at least some of us the wrong way.

    (And if you’re not with the program, you get thrown into the ready-made categories of Grinch and Scrooge – both tired images with accompanying platitudes.)

    So, speaking for myself, I look for moments of something like wonder at the margins of the frenzy. And patiently connect the dots. Noting/acknowledging that something has been lost amid all this frenzied excess… which I am coming to realize is at the core of the rot that has taken hold of American society (more on this to come). A society that is unraveling, slipping into the downward spiral of The Decline, a reality that all this excess attempts to negate.

    But I will end on a note of “cheer:” at least we have the spectacle of all the lights and decorations to dazzle us…

  • Reality Will Have Its Due

    This post is focused on a possible near-term event, namely a high probability of a stock market correction – possibly a very deep one, leading to usage of the word “crash.” But also hints of other aspects relating to reality, or rather, activities and trends that are in various ways are in contradiction to what actually is the case. And which I take as symptoms of The Decline.

    In broad strokes the market has greatly diverged from the real economy. By a number of metrics it is extremely overvalued. The prime example is the Buffett Indicator, which has now reached a record 210%. Adding to this is the red flag of a concerning low level of breadth, with a small group of stocks (“Magnificent Seven”) accounting for the bulk of recent gains for the NASDAQ and S&P 500 (both in record territory – even as the signs accumulate of deterioration in the real economy).

    In a word, the market is in a bubble, Those who say we can only identify a bubble in hindsight are at best clueless. Especially as we note the extreme concentration in a handful of stocks that are most tied to AI development. The usage of the term “bubble” is showing up more in a number of places. Of all people Sam Altman of OpenAI has said succinctly that we’re seeing an AI-based bubble.

    The following chart, created by Dr. Jean-Paul Rodrigue, is a frequently referenced map of bubble progression. Where are we now? Squarely in the Mania Phase for sure, and most likely past Enthusiasm into Greed and Delusion.

    Pinprick (Reality)

    What has recently occurred that could be that proverbial pinprick? Consider some recent developments:

    • The recent report from MIT (as described in this article from Yahoo Finance), in which for “AI enterprise solutions” there has been something like a 95% failure rate.
    • The recent problematic release of OpenAI’s ChatGPT 5. Reactions vary from “lame” to disastrous. Sam Altman issued an apology of sorts. And a few wondering if LLMs have perhaps reached a kind of limit.
    • Recent announcements from competitors of Nvidia, such as the most recent one from the Chinese company Alibaba. The thing is, Nvidia hasn’t created some super technology that no one else can emulate some way, albeit involving a lot of intellectual effort and cost – namely, chips designed to work on large data sets and embody parallel processing. But many “investors” appear to believe Nvidia will always be the dominant, or even sole, player in this space.

    There are some other items to consider. Such as reports of surges in electricity bills for those living near some of the new data centers that are being built. Add problematic outcomes of usage of LLM models – weird results such as “hallucinations” that are not just concerning but eye-opening (see Addendum for an example). Even if there has been only a single or handful of outcomes such as suicide from someone seeking help relating to mental issues, it still doesn’t look good. The point is, systems like ChatGPT simply aren’t infallible.

    Then there are all the tech companies laying off or holding off on hiring, with CEOs saying outright they are filling roles with AI agents. A worrying number of new college grads are having difficulty landing that first job, and some of this can be attributed to AI usage – the unemployment rate for new grads is now well above the official unemployment rate.

    And speaking of high tech work, we see other reality checks. Earlier in the year the CEO of Anthropic (major AI player) confidently predicted that in six months 90% of new software would be written by AI – basically around the time of this writing (September). For one, we are not even close to that mark. But we are now getting reports of a software engineers finding themselves in a new role, namely, cleaning up problems in AI-generated code. One example involves security, with some security experts estimating that this code has about ten times the vulnerability in terms of security than code that has been written by humans. (to do bring in references – such as by Futurism)

    An Initial Reaction to Reality Meeting AI Hype

    In early August 2025 the market significantly pulled back in reaction to the report by MIT referenced above. Companies like Nvidia and Palantir Technologies saw their stock valuations crater. Part of the reaction was also a general reaction to high valuations of technology stocks.

    We can see this event as a kind of taste of what’s to come.

    And Then a Comeback

    But it didn’t take long for the market to recover… and surge to new (record) highs. Which are still in effect as of this writing, in September.

    For one, there were clarifications that the MIT report was really describing the failure of implementations of AI technology, not the technology itself. It’s not clear if this conclusively negates concern, but in any case “investors” took heart in this. Even so, a number of issues remain – note some of the problems described above. In the midst of a Mania phase, glimpses of reality have a shortened life.

    But this was then superseded by something else that ignited the enthusiasm (Greenspan’s irrational exuberance) of many “investors” in spectacular fashion. Namely, imminent rate cuts by the Fed! As has been seen before in history, expectations for cuts has acted like a drug (see Hopium). It’s really quite remarkable. Especially as once again looking through history, such cuts have almost always failed to have an immediate stimulative effect on the economy (note the chart in the Addendum). By the way, remember the cuts last fall? No? But maybe you forgot because… the economy continued to deteriorate. And it was deteriorating, a view bolstered by the recently released BLS report, which found that in the year up to this March (2025) the agency had misstated the number of jobs created by… 911,000. And then there was the surge of the long end of the yield curve (the one that mortgages for example are tied to)… upward.

    Reality

    But the stock market is only one aspect of extreme dynamics.

    Economically – with overlap with social and psychological reality – there is the huge divergence (and disconnect) between those enjoying asset prices that continue to surge (stock prices especially) and a much larger portion of the population that is at best struggling to keep their heads above water. The latter are dealing with the reality of increased cost of everyday living, showing up in groceries, rent, the cost of cars, insurance (auto, home, healthcare), medical costs (including premiums), as well as a number of other items. And then there is the true state of the job market – now being revealed as, simply, not good.

    But there are other things to consider. Such as the increased tension in social dynamics. As of this writing the assassination of MAGA figure Charlie Kirk has triggered an upsurge of toxic rhetoric in the wake of this killing (such as Democrats are part of a terrorist organization). There is a feeling that “knives came out,” with a slight cooling on learning that the shooter was a white kid from a solid Mormon family.

    This theme is far from being exhausted. There are all sorts of realities that remain despite optimism that continues (albeit now in weaker forms) concerning the economy and prospects for the empire.

    But I will end with just a quick reference to something much larger. Namely, the accumulating signs of deterioration in the biosphere. The warnings contained in a study by MIT that came out in 1972 (referenced in this article) can be used as a proxy for this overall situation. Some recent studies suggest that the gist of the report is still very much intact. And that we are headed for some sort of collapse by 2040. What’s troubling is that most can’t really address this issue – even if they acknowledge it – when dealing with financial and social issues that are in themselves overwhelming. So looming over our society – civilization – is reality: the consequences of our enormous and mostly deleterious effect on the planet. As per science fiction writer P. K. Dick’s quip about reality, just because a large portion of America – and the world – doesn’t believe there is much to worry about, such as the build up of CO2 leading to global warming, or the accumulation of micro-plastic throughout the biosphere (which includes our own bodies), doesn’t mean these problems will just fade away…

    Addendum

    So as of this writing the enthusiasm for AI is in place. But in researching for this post I came upon an example of AI hallucination that really encapsulates this problem.

    In this post a situation is described in which ChatGPT was asked “what is the world record for crossing the English channel entirely on foot?” It answered, and without hedging: “The world record for crossing the English Channel entirely on foot is held by Christof Wandratsch of Germany, who completed the crossing in 14 hours and 51 minutes on August 14, 2020.”

    Yeah, I definitely would stake my life on such technology.

    Reality of Fed Rate Cuts

    Note the Fed funds rate in relation to recession (courtesy of the Fed itself). Do you see it? Not long after the Fed begins to cut rates, a recession occurs. Some will say they are too late, but the funds rate usually lags various bond rates, such as the two year Treasury. It can be argued that the bond market actually has a handle on the true state of things (economy), taking in consideration data points that many “investors” either outright miss or are too busy being bullish to care.

    Magical Thinking / Delusion

    There is an uncomfortable overlap of mania and delusion. The market is supposed to be a “voting machine” but many times is overtaken by psychology – such as we see in the Manic phase. BTW, on the opposite side of the coin is panic. Which leads to corrections and crashes. This manic behavior is very similar to that of a gambler.

    One theme to be developed is a possible connection, in terms of psychology, of the propensity for magical thinking in the face of a sense of a stalling and unraveling. Yes, hard to pin down, as it can’t be measured in the same way as, net worth or debt levels, for example. This sense comes out in various ways, but is mostly deflected by MSM and other means. This is The Mirage. What am I talking about? Check out large swaths of America that are shabby, showing signs of deep decay. Populated by a substantial portion of the population if not living in poverty, dealing with precarity. And includes millions who see Trump, for example, as a means to magically transform America into a new “Golden Age” (Trump’s words). As I write this I see this is something I want to develop further – so it constitutes a major “to do” in further posts.

    At the time of writing, mid September, there is a major example of this unraveling. Namely, the “knives are out” in the wake of a major MAGA figure’s assassination. Right, even as the rhetoric becomes disturbing, and tension rises… the market goes up!

  • Victory Laps on an Ice Shelf

    At the top of summer 2025, there is unbridled optimism among a portion of Americans: those at the top of the economic pyramid and others with the wherewithal to continue speculating in assets such as stocks and crypto. Aided by Cheerleaders in the MSM (see quote below), we get sentiment along the following lines: The economy is on a roll! Or about to take off! In any event, it is not in recession, and if one occurs it is still sometime off in the future. The tariffs are turning out to be a “nothing burger.” And so on. The problem is this optimism is not shared by a large number of Americans. And the economic data, if looked at in its entirety, is anything but a cause for celebration.

    In the midst of writing this post, the BLS came out with their July report. Hmm, only 73,000 new jobs were created in July. But what was shocking were the large revisions for previous months. Now we are getting a dose of reality, with an average of 35,000 jobs created over three months ending in July (prior three months saw an average of 128,000), and a meek 1.2% average annualized GDP reading for the first half of the year (vs 2.8% for 2024). The markets initially reacted with a modest selloff. However, in the following days that selloff was erased and the optimism appears to be intact (and the Party continues, perhaps with some doubts creeping in). We’ll see how long it can continue. But given there has been as yet no “severe” reaction, I will continue as if this news can be treated as a “bump in the road,” and that the “great news” remains.

    This quote of an analyst seems to encapsulate the prevailing view among those mentioned at the top of the post – those doing pretty damn well, damn any indication that the economy is anything but “robust:”

    “No one expects the US economy to enter recession anymore.“

    (Further update: as we continue into August, signs of doubt about the health of the economy are starting to pile up, some of them to be detailed below. However, the Party continues as the markets are still hitting all-time highs.)

    The Great News Concerning the US Economy

    So, what is the basis of such great news?

    Well, look at the stock market! Back to making all-time highs!

    And there is the historically low unemployment! Healthy amounts of new jobs are being created. The economy must be in great shape!

    Perhaps there remains some pesky inflation, but the current rate is a lot less from what was seen in the previous year.

    Oh, and we get a GDP print of 3.0 for Q2! Hallelujah!

    So much for any major hit from the tariffs. The Party is intact!

    But…

    It’s kind of annoying to have to put in the effort to go through the above indications and give the details that are left out – either by laziness or intentionally – at least by MSM.

    GDP and the Labor Market

    Let’s get the GDP out of the way. I will have to give the MSM credit for stating at the outset that the import component to the calculation made a large difference. Namely, the large decline in imports (a negative factor in the calculation) was a major factor in that modestly high GDP print. Of course, this was a result of tariffs. Another factor has been the so-called front-running of the tariffs – economic “activity” that is misleading as to the true state of the economy. This included a build-up of inventory in anticipation of tariffs.

    Mid-July the Federal Reserve put out its so-called Beige Book. This is the Fed’s take on the economy, which is broken down into 12 regions. In this report only 3 of the 12 regions showed growth, 2 of them only slightly. Not exactly an upbeat assessment.

    And then there are all those jobs! Except, many of them have turned out to be a… mirage. We’ll put aside the chiding from LISEP, for example, who point out how a large number of these jobs are basically bs jobs – with wages not coming close to providing the wherewithal to cover the cost of living that an increasing number of Americans are having difficulty keeping up with.

    But then the BLS came out with the July non-farm payroll numbers, along with revisions to prior months. And we got… a dose of reality. An average of 35,000 jobs created per month for the last three months (ending in July) should be the equivalent of being doused by a bucket of ice water. Also, the BLS notes that continuing claims remains elevated. This dovetails with anecdotal statements from a number of workers who report having difficulty finding work, especially in the tech sector. Corroborated by the University of Michigan survey, with an elevated % of those surveyed saying jobs are hard to find.

    Inflation

    Inflation, as measured by the CPI, has become, at best, subdued. There actually has in the last several months a slight uptick, such as in the related PCE. The latter could possibly be an indication that fallout of the tariffs has begun. One thing that many seem to miss, is that it was not realistic to think the fallout would be close to being immediate. A few voices, some major investors, pointed out that the effects would see a lag in roughly a six month time frame.

    But one thing with the CPI and related, is that inflation as being broadly measured is flawed. Folks “on the ground” are sounding an alarm, based on grocery bills that only seem to climb as time goes by. If we just look at food prices, a more realistic picture emerges: in the first half of 2025, food prices have increased 12.5%, way beyond the more tepid readings. How could this be? The CPI is looking at all sorts of goods and services, a broad range – when, for example, did you last purchase a TV (whose prices have moderated)?

    Stock Market

    The stock market is, in a word, in a bubble.

    There are a number of metrics that bolster such a view:

    • The Buffett Indicator
    • The CAPE Index
    • Breadth

    Tariffs

    So much for all the deals that Trump boasted on concluding. At the time of writing, after the extensions ended, full-scale tariffs have hit close to 70 countries. Except some extensions are still in place. Such as with China. Which only means the full-scale tariffs are not yet in place.

    A few people have noted that this on-again/off-again/abrupt change in course behavior makes it difficult for companies to make plans. This isn’t political: such behavior comes off as being fickle and, really, kind of dumb.

    What remains to be seen is when the full-on effects of the tariffs hit. As yet, so far there has been no major problem with prices, except we have seen evidence that some prices related to imports are indeed rising. But you got to love it, more than a few analysts/etc have made the simple statement that the effects of the tariffs will take months to fully manifest. I say that because there seems to be a number of analysts/commentators/etc who appear to implicitly believe that the effects should have been seen almost immediately – and since they weren’t, well… time for those Victory Laps!

    Analogy of Basal Melting

    The image at the top is a simplified view of basal melting. The basic point of the analogy is that the deterioration of the ice shelf as depicted occurs from below, as warmer water (“A”) eats away at the underneath of the ice. And it does so out of view.

    The Cheerleader type prancing about on the surface of the ice shelf thinks, wow, I don’t see any problem. Things must be fine! So much for the doomers. To rub it in the face of the latter the Cheerleader engages in a victory dance!

    And that encapsulates much of what passes for expert analysis these days.

    But out of direct view things are deteriorating. And direct view includes the data the majority of what the MSM chooses to present. The following is an enumeration of many of the signs that the economy is in a not-so-great shape. They interrelate in various feedback loops with each other, as well as other factors such large-scale climate patterns. They can be seen as cracks in the ice shelf.

    To organize them they are grouped by categories.

    Debt

    In a word, we are drowning in debt. In all major sectors: government, consumer, and corporate. We’ll focus on the consumer:

    • Total consumer debt, all categories: $18.4 trillion
    • Credit card debt: $ 1.2 trillion
    • Auto loans: $ 1.6 trillion
    • Student loans: $ 1.6 trillion

    That $18 trillion number, btw, is on par with the combined GDP of [ all of the ] Americas and the European Union.

    Delinquency and Default

    This category is basically Debt, but with a focus on increasing difficulty in handling the various types of debt.

    This should be another wake-up call, akin to those recent job numbers, with credit card debt, auto loans, and student loan delinquencies approaching 2010 GFC levels.

    One shocking element in this category is that the income group seeing the highest rate of rising delinquency are those making [ over $150k/ year – do do, check ].

    Labor Market

    The BLS has been having trouble reporting close-to-accurate figures for some time. They are reliant on surveys – two of them, the Establishment (business) and Household. The headline number given by the MSM is derived from the former.

    One component of the labor market is the number of those with continuing claims.

    Overall, some are calling the current situation “low hire, low fire.” The “low fire” part is deceptive –

    Housing

    The housing market has, in a word, stalled.

    Affordability [ lowest on record ]

    Commercial Real Estate

    This sector is in big trouble. And very little of the “cracks” in this sector is reported by the MSM.

    Sentiment

    Overall, sentiment among Americans has reached levels that reflect their condition…

    Cracks

    The preceding gives a picture of an economy that is at best stalling. One that is facing all manner of vulnerabilities. Vulnerabilities that could, with the right trigger, lead to major events such as mass layoffs, a stock market crash, and a financial crisis (with banks imploding, for example).

    The Victory Laps are basically a species of delusion. We are in the position of someone who believes, standing on a crumbling ice shelf, that what is beneath their feet is solid. Unable to see the deterioration that is otherwise hidden from their sight.

  • Summer of 2025: And the Living Is…

    …easy. Or so the song goes (lyrics are from the opera Porgy and Bess).

    It’s easy for some, I guess. Like those set to benefit from the markets poised to make new all time highs (S&P 500 anyway, at the time of writing).

    (Update, on 6/27 the S&P 500 “squeaked” to a new record high – hurray!?).

    And what is the great news triggering the markets to shoot into the stratosphere?

    No WWIII, for one (f or the time being at least). And oil appears to not be surging into the stratosphere. But it’s not as if the dust has really settled. But many “investors” with ADHD (helped by Hopium) have concluded the bombing, for now, is done with and there is a cease fire between Israel and Iran. So time to move on!

    And speculation is increasing the Fed will cut rates sometime… soon. Oh joyous news that will be (even if the short term rates will do little to help much of anyone, at least in the short term; keep in mind mortgages, for one, are based on long-term interest rates, out of the Fed’s scope).

    But maybe there is no real reason other than the conviction that stocks are so close to all-time highs so it’s time to pile in. Generating wealth… for top income tiers… who are really the main beneficiaries of these manic surges.

    But really, how about a reality check?

    • Starting off, Q1 GDP has just been revised again. Down a bit. Hmm, not exactly great news. At -0.5% that means the economy was indeed contracting.
    • Continuing unemployment claims have been steadily rising. They are now at 1.937 million, the highest since November 2021.
    • Housing price drops are being reported in certain housing regions, such as the South. Could be good news, but then we get the headline: US New-Home Sales Drop by Most Since 2022 on Poor Affordability.
    • Oh, as to inflation: “core” PCE, the figure closely watched by The Fed, ticked up. Maybe not much, but it appears the best you can say is that it is sticky, not disappearing as some had hoped/predicted.

    More broadly:

    • We hear from both consumers (informally, on social media) as well as from corporate CEOs (Starbucks, McDonald’s, many other fast food franchises) that for growing numbers fast food has simply become too expensive. Remember when fast food wasn’t just about convenience but cost?
    • And at least some franchises have started to issue concern. Like Starbucks, with five consecutive quarters of declining sales.
    • Consumer debt (principally credit card) remains at record levels.
    • There is an uptick in delinquencies in this debt.
    • And more consumers are resorting to Buy Now, Pay Later (BNPL) plans. They are being used not just for discretionary items such as concerts (ex. Coachella, where it was found about 60% of tickets bought were on BNPL plans), but also for groceries. That is, for everyday expenses. Note that there is an uptick in such loans becoming delinquent or in default.
    • More debt: about one in three student loan borrowers risk default. That is about 5.8 million borrowers who were 90 days or more past due on loan payment, as of April 2025.
    • Speaking of college grads, the difficulty of many new grads with degrees like Computer Science in landing a job is getting attention. In some situations it appears that AI is at least partly to blame. Last I heard 1/3rd of software written at IBM is being done by AI.
    • Consumer confidence, as tracked by the Conference Board, “unexpectedly” declined in June.
    • The list could go on and on. With horrible data for the housing market, for example (with low sales figures and rock bottom affordability). But I will end with this: corporate bankruptcies, where 188 companies filed for bankruptcy in the first quarter of 2025. This figure is the highest seen for this period since the Great Recession, and is a “significant increase” over the 139 filings for Q1 2024.

    Yep, a “solid” economy! (adjective used by The Oracle and MSM).

    The job market is not close to being “strong” as you will see being stated in MSM (just today, saw an article in The Guardian attempting to answer why college grads are having a difficult time, while the job market is “strong”). Inflation is still around, and paychecks are not keeping up for significant segment of the working population (remember, wages by themselves do not directly transfer to paychecks – hours worked is usually and conveniently left out). And there are signs the economy is not firing on all cylinders.

    One word for this: stagflation. The keyword for the Summer of Our Discontent.

    By the way, on top of the preceding that “big beautiful (stupid) bill” will end up gutting the safety net (for ex Medicare and SNAP). Some Americans, the most vulnerable, are set to lose big.

    Behind the platitude of “the living is easy” there is growing frustration and dismay. But the stock market, as hyped by the machinery of The Mirage, is fantastic. And there you have the current state of America in a nutshell, with winners drowning in “wealth” and a lot of Americans getting screwed.

    …..

    Some related thoughts:

    Much of the preceding would suggest something “big” is in the works. As in some sort of unpleasant financial event. And yet, the can continues to get kicked. More debt! Including even larger deficits that will result from that “big beautiful (stupid) bill.”

    Gershwin’s Porgy and Bess is an example of American Genius. It’s not that there aren’t interesting artists and acts in the current scene, but we seem to be bereft of real genius. Instead, for example in many mainstream movies, we get stale rehashings of stories that are being sequel’d to death. (It’s as if a lot of these stories are written by AI; come to think of it, there is talk of incursion of AI into Hollywood… with jobs, including for writers, on the chopping block)

    Lastly, a recent blog post from the Federal Reserve, Real GDP Growth by State is quite enlightening, and sobering. 39 of the 50 states saw contracting economies in the first quarter of 2025. Texas and California saw slight contraction, but because of the size of their economies that contraction is very significant.

  • Who’s Partying?

    While the so-called Big Beautiful Bill, a massively irresponsible piece of legislation, recently passed the House, some commentators have noted with the irony that 10 of the richest Americans saw their wealth surge by over $360 billion in 2024. These folks and others in the top economic tiers are poised to win big with that bill by virtue of a number of tax breaks. They do not need any further help in adding to already large wealth positions. Meanwhile significant numbers in the bottom tiers are, to put it bluntly, set to get screwed.

    This article from CNBC gives an overview of who is set to win, and who will lose. Those on the higher income tiers will see tax breaks for business owners and investors, such as with the SALT deduction, rates for income taxes and the estate tax. The Congressional Budget Office estimates that the top 10% would see an increase in income, with an increase of 4% in 2027 and 2% in 2033. In contrast, the CBO projects that the bottom 10% would see a decrease in income of 2% in 2027 and 4% in 2033.

    The idea is that the tax breaks will lead to greater economic activity (GDP). But many sober estimates yield increases around 0.5%. Meanwhile, the deficits (and government debt) is set to soar by trillions of $s. If the tax changes in 2017 are any guide, we will mostly see the wealthy only getting wealthier, while majority of Americans will see little if any benefit. And some of those at the bottom tiers will simply be in worse shape.

    government programs

    At the time of writing, a handful of GOP Senators (along with Democrats) stand in the way of the bill’s passage in its original form. However, it appears that even with changes there will be cuts in programs such as Medicare; the question is by how much.

    To do – more on this second half/ including reference to Oxfam study

  • The Party Is On (Again)

    The markets had plunged in the wake of “Liberation Day” (a term that is yet another example of the bs that characterizes the Decline), but now, as of mid-May, the S&P 500 has recovered its loss (“… one of the greatest comebacks in market history” – analyst). The Party is on again.

    Or seems to be.

    Did anything actually change? Not really. Sure, a few “deals” have been made over trade (very few), such as with the UK. But, um, how many more deals to go? And no, the 90-day “pause” with China (in addition to other countries) hardly counts, as there is just some breathing space, during which tariffs have only been lowered (not erased). But damage has already been done, and will take some time to fully undo even if some “amazing deal” is reached with China. The supply chain has been interrupted, and Walmart, as a prominent example, has announced price increases (despite threats from Trump – who can do what, exactly?).

    So what appears to have happened is that with the introduction of stiffer-than-expected tariffs, and on an unprecedented scale, there was a kind of acknowledgement of reality. And with the markets so disconnected from the “real economy” (see, for example, the Buffett Indicator), this “shock” was enough to flip optimism into concern and fear. Even if many corporations say their earnings are “strong,” it would appear any return to optimism is suspect. See recent statements from Walmart, in which prices for many items, particularly from China, are expected to rise. Also note recent statements concerning their customers over “stressed behaviors,” with reduced spending in general (somewhat compensated by rise in the number of higher-income customers, itself a data point), particularly over discretionary items. And it is not just Walmart expressing such wariness over the general consumer.

    Speaking of the American consumer, the University of Michigan just released a reading on consumer sentiment that should be a wake up call. It shows a further decline, the 5th monthly decline in a row, and is the second to the lowest reading on record. At 50.2 it is a lower reading than what was recorded in 2008 (GFC) and during the 1980s recession. Not much in the way of optimism with a larger percentage of the population.

    Such a discrepancy encapsulates the current situation: a large disconnect between the elite and investors with their indefatigable optimism and the many consumers expressing concern and wariness over the economy – and their own fortunes.

    “The Party” is really just a name for the hype inculcated by and spewed out from the mainstream media (most of it, anyway) and by government and financial elites. And it is apolitical. We heard about the fantastic economy under Biden (Bidenomics) and we are hearing it now, albeit in a diminished form (such as with talk on a possible avoidance of recession). It serves those in power to “prove” things are swell for the majority and so those in power can take credit. It all sounds so wonderful until the surveys are taken – as were done before the last election and now recently (see University of Michigan). The majority is not buying the wonderfulness.

    Currently, any talk of avoiding a recession or even, entering into (outright delusion) a new “bull market,” is taking place as storm clouds continue to gather. And they are gathering:

    The tariff situation is far from being settled. And “pauses” as noted do little to assuage the damage that has already occurred.

    Some point to the job market, such as not-so-bad first time claim numbers, as a sign that the economy is “solid.” But red flags are mostly being either downplayed or simply ignored. Continuing claims is concerning, and the number of those unemployed 5-14 weeks has increased to 2.27 million in April. Indeed just released stats showing level of hiring is a “fresh low.” Hiring has substantially declined. And then there are the quality of the jobs that are advertised: healthcare for example is not a great proxy for a robust economy.

    Speaking of jobs, the reports of layoffs and difficulty finding work in tech and finance have surged of late. These are well-paying jobs. New grads, for example, via social media, are voicing frustration in getting that first job (many of whom have substantial student debt, by the way). And it appears increased usage of AI in major corporations is leading to the elimination of humans in an increasing number of roles.

    There are all sorts of other concerning data. Delinquencies are on the rise (credit cards, car loans). Reliance on buy-now-pay-later is also increasing; including for everyday goods such as groceries (this is definitely not a good sign).

    But looming over all of this is something that could prove problematic, even catastrophic (in a future that seems to be coming into view) to the US, with the continued increase in the federal deficit. It is being noted that the interest on this debt is increasing at a concerning pace and in the near future could be the largest line item in the federal budget. Didn’t Trump promise to “balance the budget?” (Oh, he did say, “soon”) Well, so much for the pretense of being concerned: that “big beautiful bill” that now has gone to the Senate is alarming, and irresponsible. More will be written about this on this in the next post. For one, the bill means more red ink – a lot more (trillions of $s). The recent downgrade by Moody’s, although in itself not “end of the world,” could and should be a wake up call. It is at least in part the trigger behind the recent increase in long term yields (10 year, and 30 year). One of the storm clouds is the problem for many banks that these yields present (in relation to unrealized losses – more on this later on). And then there is the fallout with elevated mortgage rates. Oh, then there is also the recent retreat of the dollar.

    But no matter. What counts – for some (such as the top 10% who own the majority of stocks) – is that assets like stocks continue their ascent. It means things are fine in the economy, right? No need to bring up pesky contrary stats to spoil the party.