02 Feb 2016

Slow Motion Train Wreck

Financial Economics, Shameless Self-Promotion 20 Comments

Long-time readers know that I have been warning for years that the U.S. stock market was being driven by Fed policy. Last summer (in 2015) my co-author Carlos Lara and I began a three-part financial/economics seminar on “The Coming Storms” to Paige McKechnie of CCC Corporation in Nashville. We had already done the first one or two presentations and then the stock market dropped sharply in August.

So in the following session (when I think some of the participants were thinking “Wow I wish I had taken these guys more seriously when they sounded so alarmist a couple of months ago”) I wanted to show people that the previous two stock crashes were not one-shot events. Instead, they were slow-motion train wrecks.

(In the above, the camera guy was only on me, and so after the fact he interspersed shots of my PowerPoint with its animations. But you can’t see what I was hitting with the laser pointer, because he didn’t have a camera on the actual screen that the audience was seeing.)

20 Responses to “Slow Motion Train Wreck”

  1. Tel says:

    August 2013

    Right now we are in the midst of the Great Recession, or the Second Great Depression if you prefer, in the same way that Americans in 1936 were still in the Great Depression. Notice how all of the things you guys are using to ridicule Schiff and me, could have likewise been used to ridicule someone in 1936 saying, “The economy is awful, all of these interventions are making it worse, we are still in a depression.”


  2. Tel says:

    This was my prediction from September 2015


    US dollar is much stronger than I expected, and commodity prices went down not up (as measured in USD). However, Yellen raised rates anyhow but it was only a very small token rise.

    I also mentioned that the US was sliding into recession, and I think that’s accelerating now.

    There’s a lot of momentum right now with Soros teaching the Chinese a “Bank of England” lesson… and that’s going to hurt a bit, so at least in the short term the USD will stay strong (cleanest dirty shirt and all that). Don’t even get me started on the Keynesian negative interest rates in Japan. Those poor dumb Japanese are going to be banging their heads for at least the next six months, probably longer… they just cannot overcome their cultural constraint to see the stupidity of their central bankers.

  3. Curious Saver says:


    Let us assume average joe has 100K real cash stuffed under mattress and 150K worth of various abandoned 401ks from previous employers. What should he do today?

    • Tel says:

      If the “average Joe” in the US had $100k in cash savings, this would be a very different economy.

      I think you massively over estimate the level of savings… people are in debt and their “savings” is to slightly get out of debt here and there. From this perspective, rising interest rates are a big fear (if your debt is variable rate, and a lot of it is).

  4. Gene Callahan says:

    “Wow I wish I had taken these guys more seriously when they sounded so alarmist a couple of months ago”

    But Bob, weren’t you predicting market disaster when the Dow was at 6000? (I was buying at that point, fwiw.) Weren’t you predicting it through the whole rise of the last seven years?

    If I predicted the death of David Bowie every day for the last 7 years, do I get to crow this month when he actually dies?

    If the Dow gets back down to 15,000 it is buy time again. Do you want to write a derivative contract on whatever position I take so you can short my position?

    • guest says:

      “If I predicted the death of David Bowie every day for the last 7 years, do I get to crow this month when he actually dies?”

      If he died for the reason you’ve been saying, then yes.

      Austrian Economics doesn’t bestow the ability to predict when, but why (all other things being equal).

      • Craw says:

        I predict Mick Jagger will die of old age.
        I predict Paul Krugman will die of old age.
        I predict the Pope will die of old age.
        I predict Gene Callahan will die of old age.
        I predict George H W Bush will die of old age.

        That gives me 5 shots! All I need is to be right about one to call myself a suuuuuuuper-genius!

        See you tomorrow.

        • Major.Freedom says:

          Horrible analogy because business cycles that take place which are caused by central banks are not inevitable the way dying of old age is inevitable.

        • guest says:

          If producers produce for non-existent consumer demand, is that the fault of the consumer for not choosing to spend his own scarce resources on something he values less than something else at the moment?

          Or is it more likely that the producer failed to correctly anticipate consumer demand?

          If you said the second one, then consistency obligates you to abandon the concept of “aggregate demand” and embrace methodological individualism and all that logically follows from it.

          See you when you wake up from that one.

    • Scott H. says:


      • Major.Freedom says:

        …is missing the point.

    • Matt North says:

      Sigh. Every time Bob gets proven right, Mr. Callahan complains that he wasn’t right at the right time… as if there is any economist, let alone model, that can time the stock market.

      Furthermore, the analogy is off… Everyone is going to die. Markets do NOT have to crash. A better analogy would be: Callahan drives his motorcycle at 100 miles/hr on a narrow dirt road on a mountain side. Bob says, “you know, everything looks great now, but sooner or later you’re going to hit a bad spot and it’s going to become really apparent how illusory your sense of safety is. You might want to slow down a bit so you can maintain control even if you hit a bad spot.” Callahan proceeds on his way for another 10, 20, 100 miles, and then gets into a wreck, but gets back on his motorcycle and does the whole thing again, saying, “See Bob, your model is all wrong – it took 100 miles before anything happened, and now I’m up and riding all over again, no problem” (of course, if we could ask his passenger who is now lying dead at the bottom of the mountain we might get a different assessment).

      Callahan’s argument is essentially the same thing my 8 year old daughter says every time I warn her about something dangerous she is doing… Me (Bob): “Don’t pull the cat’s tail or else he’ll scratch you.” Her (Callahan): “I’ve done it before and never got hurt.” Or even: Me: “Stop spinning in the livingroom — you’ll get dizzy and hit your head on the TV stand.” Her, proceeding to do it anyway: “See, I didn’t get hurt.” Me: “Well then, please, continue doing it until you do get hurt!” Her: silence.

      • Bob Murphy says:

        I predict Gene will not be moved by Matt North’s comment.

      • Craw says:

        “Markets do NOT have to crash.”
        Interesting claim. Did Bob Murphy discuss abstract asset markets in Postulateacanopenerland that never crash, or did he discuss the stock market?

        • Major.Freedom says:


        • Matt North says:

          You seem to be postulating that there is a difference between the stock market in general, and the market in can openers in particular. You tend to affirm ABCT, IMO. Fed printing does result in bubbles in particular markets first, causing a general bubble in the stock market. Q is, which markets (and how do you know in an environment of fed bubbles), are the bubbles sustainable, and who will be harmed when they pop?

    • Tel says:

      Well I’d argue that the “typical” business cycle length is about 15 years (of course I understand that there is no “typical” cycle, but that’s the rough order of it).

      If you can predict to within a 4 year window, that would be 1/4 of a cycle so you are at least in phase with the events. Some prediction requires risk… but not always. Consider if I might be worried about Sydney house prices falling after they have recently been driven up so much (Perth prices fell, and Sydney has been pumped by Chinese money which looks questionable in future). So I might think about selling the house, so I get it looking nice, talk to some agents, sniff around a bit… but I don’t HAVE to sell… I’m just doing the groundwork while keeping my options open, because that’s what prediction is about, not getting caught by surprise.

      Anyhow, going back to the quote from Murphy above, he said 2013 was like 1936. That would make 2016 equivalent to 1939 and we should be on the lookout for a Pearl Harbor event… but maybe it could come a couple of years late, or maybe not at all if enough people do something to prevent that. Most important thing is don’t get caught by surprise.

      What would have happened in 1940 if Hitler had stuck by the treaties that he had signed? Difficult question.

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