Men in the city are on the rise. Masculinity is a Phoenix that must be stress tested so it can rise from the ashes. If life is too easy, if it is abundant, pleasant, and predictable, if it is unchallenging then masculine energy dissipates. Masculinity requires concentration and focus like a directed-energy weapon. Like an idle body, if left neglected and unused, if left to fatten and decay, libidinous power wanes or goes limp. On the contrary, as the world darkens, as resources evaporate, and conflict reignites a masculine rearmament surges. As interest rates normalize and the cost-of-capital soars, and the painful process of “creative-destruction” erupts a masculine resurrection will follow.
The Gerontocracy is doubling down on self-destruction.
In the last 18 months everything has changed and no one in the Gerontocracy noticed. Inflation – long forgotten since the 70’s – has reemerged from hibernation and forced central banks led by the Fed to aggressively raise interest rates (from 0% to 5%) to levels unseen in decades. In Ukraine conventional warfare, the clash of industry, of machines and men, is back with a vengeance, a human tragedy few in the West understand or remember, and even fewer among the ranks of the Gerontocracy. Great powers around the world are coalescing in new monetary unions (BRICS) and building new alliances (SHO + GCC) and old ones like the European Union are fracturing and falling apart. Despite these immense changes policymakers are staying the course.
The Gerontocracy is doubling down on self-destruction. The Fed in recent statements has remained steadfast in its commitment to maintain high rates, or potentially raise them higher (see video above). War in Ukraine appears to be escalating as Polish and Lithuanian leaders cajoled by DC elites are maneuvering into the fight. Indeed, as the US economy digests the lagging effects of higher rates consensus on Wall Street remains steadfastly bullish. Stocks are moving higher, inflation has abated, and US consumers are spending so all is well, and nothing has changed. Trust the plan and go back to sleep.
Under the Hood
Under the hood the situation is quite different as anyone paying attention knows. In recent months CPI has dropped significantly so many in the financial media are prematurely calling an end to inflation and market soothsayers intuit a Fed pivot is imminent. However, as economist Mohamed El-Arian suggested last week (see video below), it is very likely that inflation stays “variable-higher,” meaning it will peak and trough due to unresolved supply chain issues, high energy costs, and service sector pressure. Second, the prevailing assumption that interest rates will simply sink back down contrasts sharply with public debt yields, especially in German bunds and US Treasuries where yields continue to climb. More important, spending from US consumers appears to be slowing, even among wealthier Americans. If this is the case a recession is near.
The financial fugazi extends to sky-high equity markets. On the surface there is cause for optimism. The S&P 500’s worst day was 21 Feb, a 2% down day, making it the 24th worst day compared to 2022, and far better than 2020, which boasted multiple days of double-digit losses in the S&P. Further, the NASDAQ is up a whopping 32% and Apple's Market Cap is back to 2021 levels, in the neighborhood of $2.8T. Plus, AI is here to lubricate any irritating inefficiencies – so we are being sold – so all is well, back to the bull market.
These are impressive stats that belie overall stock performance YTD. If we consider the equal weighted S&P, meaning all companies are given equal significance, the index is up a lackluster 6%, and a meager 3% of the NASDAQ is participating in the bull run. Only a narrow Magnificent 7 (Nvidia, Tesla, Meta, Apple, Amazon, Microsoft, and Alphabet) is pushing the market higher. Think Arnold Schwarzenegger’s torso on top of Margot Robbie’s legs. Such an imbalance is unsustainable unless the base broadens significantly. If and until that happens the stock surge is more mirage than meteor.
How much of a mirage will soon be revealed. Matt Levine (Money Matters) put it this way: “Do we have an economy in which a lot of businesses are financed with a lot of floating-rate debt, not because that is a sensible way to finance their businesses in the long run, but because a lot of fairly young private-equity professionals forgot that rates could go up?” (read more here) His rhetorical question is much scarier when you consider the following trends:
In the US, nearly three-quarters of the floating-rate debt taken out during the leveraged-buyout boom lacked hedges as recently as August, according to an analysis by Bank of America
According to Verdad Advisers, interest costs at the average private equity-backed company hit 43% of Ebitda last year
Interest rates on the largest US leveraged loans (junk-rated loans) broke 10% this month, up from 3.9% at the end of 2021
The End of Financialization
So much fanfare about America’s entrepreneurial economy is simply financialized hype. The fact of the matter is that US assets across the board are inflated, some are Potemkin villages, and others are Tube men a mere toothpick away from deflation. Financialization means that economic resources and investment shifts away from productive industry through capital expenditure and plant operations and towards the process of making money from money. A restructuring occurs that prioritizes transactional wealth through trading or financial engineering at the expense of productive enterprise. Think Paypal versus Exxon Mobil. Financialization equals bubblenomics.
The entrepreneurial industry has become a predator in the Ponzi scheme of financialization.
A financialized economy crumbles when interest rates rise. In the beginning, financialization is blissful because easy money is abundant, fiat millionaires are a plenty, and then reality strikes. Assets like cars, homes, rents, and college tuition massively inflate and the average consumer is buried in unaffordable debt. Further, mal-investments that execute the “Greater Fool Theory” to perfection spread in the cells of the economy like a cancer. In other words, the next big innovation or invention or deal like a SPAC, or ICO, or AI "startup" sparks an investing mania that flames out when greedy, unsuspecting investors realize there was no real innovation or game-changing technology to begin with. Raising rates pricks the bubble and ends the mania when companies are forced to generate real economic return or face bankruptcy.
The entrepreneurial industry has become a predator in the Ponzi scheme of financialization. The extent of entrepreneurial fugazi is laid out in an excellent paper called “Towards an Untrepreneurial Economy.” Its authors delineate between two distinct categories of investors, Muppets and Gazelles. Gazelles represent real companies that actually improve human productivity and standard of living while Muppets are circus acts AKA chimeras like Theranos run by phonies like chief executive charlatan Elizabeth Holmes (see video above). Welcome to the “Entrepreneurial-Industrial-Complex,” “an economy that outwardly appears dynamic” but in actuality is a “Muppet factory.”
Do not despair because the financial Vesuvius to come is necessary, indeed it will be our salvation. Finally, after decades of fugazy economy, of "extend and pretend," of smooth-talking Instagram pyramid scammers, higher interest rates will flush the system. A Neo-Masculinity is rising as we speak in preparation for the Age of Scarcity to come. Men desperately need to get back to work and hardship is the key. Hardship activates inner neural networks so men can reengage and rebuild a real economy out of the ashes of financialization. I am not saying this process will be easy, I am saying it is necessary. Detonating the debt bomb will expunge a parasitic system run by Beta-Tyrants.
Financial crisis will expunge a parasitic system run by Beta-Tyrants.
Alfred Lord Tennyson expressed the addictive quality and self-destructive effects of narcotics (fiat is a kind of narcotic) in his poem The Lotus-eaters. During the long journey home Odysseus and his men end up lost, some of his men are stranded in the land of Lotus-eaters where they benumb themselves on Lotus, a sedative like Huxley's soma, a stimulant that assuages all your worries away. Lotus – like fiat – renders one content, happy, satisfied, unconcerned, forgetful or apathetic and once hooked on Lotus or fiat men are enslaved by indolence. Financialization is economic Lotus, it is a distraction and false comfort that feminizes and emasculates the inner masculine, and importantly destroys any productive impulse. However, as interest rates eat away at illusory prosperity the hard-wired inner masculine will resurrect and productivity will reign again.