So it looks like we’re back in a mind numbing surreality when it comes to the stock market. Good old 5000 on the ASX 200. We’ve only been here about a dozen times in the last seven years. Unfortunately, your editor is also reading Brave New World, which is the fictional version of the current reality you have to invest in.
In the book, the world went through a rough patch and came out looking a lot worse. All the crosses got their tops lopped off, leaving us worshiping Ford and his Model T instead of God. Production lines, consumerism and eugenics are the ways of the world now.
Back in your reality, things don’t look so different. Capitalism got its bottom lopped off, with no stock index allowed to fall, no bank allowed to fail and no consumer allowed to save. We’re worshiping Federal Reserve Chairman Bernanke and his bailouts and money printing.
The moral of the story and the lesson the real world will learn the hard way is that life without risk, failure and pain is meaningless. It’s an especially tough lesson to learn for characters in the book because promiscuity has become a virtue. Getting laid is as easy as buying a pie. Clothes are designed to come off easily. It doesn’t sound so bad at first…
The book is a criticism of Keynesianism, the ideology we’re stuck with here in reality too. People’s hobbies are evaluated based on how much equipment they use. Equipment needs to be made and that creates jobs. New hobbies can’t be invented unless they use more equipment than the old hobbies in case jobs are endangered. It’s just like Keynes’ old ‘pay people to dig holes and fill them back up again’ idea.
Taking the concept full circle, people themselves are produced. They’re made in factories to fill all these jobs that need to be created. Why create people to fill jobs for the sake of filling jobs? We’ll let you know if Huxley, the author, explains that bit. In the meantime, do you feel like you live in this type of world already? As if you’re only around to maximise consumption?
Markets and Money editor Bill Bonner pointed out a few months ago that the more or less self-sufficient Greeks living on islands in the Mediterranean suffer from a severe lack of GDP. They make their own wine, grow their own olives and walk home if they can after an evening of the two. None of this is registered economic activity. ‘Poor bastards’ wrote Bill.
In Australia we live in a paradise, comparatively speaking. You can’t do a thing without contributing to GDP. If a tree falls in the forest and nobody is around to hear it, it’s probably still counted in lumber inventory by the Australian Bureau of Statistics. Even if you don’t want to contribute, try living off the grid. The Australian Electoral Commission will hunt you down.
In the book, people are conditioned into liking whatever it is they are ordained to do at birth. People who will be sent to the tropics are blasted with cold air while they still take up little more than the bottom of a test tube. They’ll grow up wanting to live somewhere warm. Babies are given electric shocks when they see flowers. Flowers aren’t labour intensive enough to produce for them to be desirable.
Bernanke gives us his own electric shocks. All he needs to do is talk about tapering off his money printing and all hell breaks loose in stock markets. He reminds us how miserable a world without him is. Here in Australia, our government does what it can to make the same message clear. Greg Canavan sent this email over showing how the government can pick and choose winners and losers at a whim:
‘If you want to get an idea of who will win the next election, keep an eye on the share price of McMillan Shakespeare (MMS).
‘Its share price plummeted this week after emerging from a trading halt, the reason for which was the government’s proposed changes to Fringe Benefits Tax laws. In short, the government wants to make it much harder for people to salary package a car. They reckon the changes will save them around $1.8 billion in tax.
‘Where the government gets a win on taxes, the private sector loses, and it’s the salary packaging companies who stand to lose out the most. Hence MMS’ 50% price fall after the market digested changes to the tax.
‘But Tony Abbott has said he will overturn the changes if the Liberals win the upcoming election. This turns MMS into an election barometer. If its share price continues to gain ground in the lead up to the election, you’ll know Abbott and the Liberals are looking good. If it heads south, you’ll know Kevin has managed to sweet talk the electorate into giving Labor another crack.
‘Neither scenario sounds good. It just goes to show that running a business (or investing in one) that depends almost entirely on government tax policy is a nightmare scenario. Especially in an age of deficit holes that need to be patched up in any way they can.’
In the fictional and real worlds both, it’s dangerous to object to the status quo. Enforced happiness still feels good. Higher stock prices still make you feel rich. Questioning the two is depressing.
Apparently the sceptic character in the book ends up committing suicide. Your editor is often asked by Markets and Money readers when we’ll do the same.
But Huxley later wrote he regretted giving the sceptic a false choice in the plot. At the end of the book he has to choose between a harsh reality, a village in India, and a faux paradise in London. (No wonder he commits suicide.) Huxley’s third option he considered adding years later would’ve been a place where economic decisions were decentralised, where politics was anarchist, and science and religion served humanity instead of the other way around.
Sounds like there’s hope.
for Markets and Money
ALSO THIS WEEK in Markets and Money…
Crisis, Capital Controls, and Accidents of Birth
By Doug Casey
As the crisis deepens, it’s likely to be dangerous for someone who doesn’t agree with groupthink. Things are likely to be much mellower if you’re living somewhere they consider you a tourist, than to stay on your home turf where questions will be asked if you don’t join the hooting and panting chimpanzees that will surround you. You can absolutely plan on unwelcome social pressure in the years to come, especially as the wars expand.
Bernanke’s QE Train Wreck That’s Heading Our Way
By Vern Gowdie
QE is actually an acronym for Quick & Easy money. Bailout Ben effortlessly cranks out US$85 billion each and every month. He intends to maintain the current pace of Quick & Easy until some magic (or more accurately, conjured) GDP figure pops up on his screen and then he might consider ‘tapering’ the quantity of paper he is pumping out — only if the market doesn’t have a massive tantrum.
The Misallocated Savings of the Chinese Banking System
By Dan Denning
That is, isn’t a good thing China’s slowly opening up its financial markets to free market forces? Well, it would be a good thing if it were true. But we’ll believe it when we see it. Mind you, there are no free markets in money any more. China is not alone in creating an unbalanced banking system backed by unsound money. But it’s done as good a job as anyone.
Australia’s Mysterious Natural Gas Shortage
By Nick Hubble
We have a remarkable network of pipeline infrastructure running up and down our east and west coast with tens of thousands of kilometres of pipes delivering enormous daily gas flows from five basins to different demand centres. And the natural gas industry could contribute $53 billion to Australia’s economy each year by 2017. Things couldn’t be better for Australia when it comes to natural gas. What is the one conclusion you could not possibly draw from this exciting and optimistic scenario?