07 Dec Permabear Defined

“The ‘Permabear interview’ is a challenge to Cassandra’s 2025 predictions.” – The Lonely Realist

A year ago, Cassandra predicted that “the Fed will continue to follow an easing path and, although it will use tough-talk to temper over-exuberance, it will not tolerate a recession. With inflation under control – the fact is that inflation truly has been ‘transitory’ and recessionary fears banished until after Election Day –, Candidate Trump will target Jay Powell as a flunky of the Deep State. Powell therefore will carefully weigh his words and the Fed’s actions, but nevertheless will begin cutting interest rates and continue cutting through November.” That is precisely what has happened. Moreover, for the last 2-1/2 years, Cassandra has been insisting – contrary to market pundits and naysayers – that the Fed “will fine-tune America’s economy to achieve a soft landing” and that “by Q1 2024, America’s economy will be expanding, inflation will be continuing to fall, and GDP growth will be returning to a stable level of ~2%/year.” Cassandra also predicted that energy prices would ease – which they have – and that growth in 2024 would be driven largely by AI – which it has –, and concluded that, “as a consequence, the ebullient stock market will prove itself priced for continued airborne flight.” Check.

Although Cassandra has been right, at least so far, more than one TLR reader has disagreed with Cassandra’s conviction that the good times will continue to roll. The bearish perspectives of those permabears are summarized below. [ED NOTE: A TLR subscriber who is a “permabear” is a person who believes that there is always a monster lurking around the corner waiting to take a bite out of the markets and human stability.]

Permabear:       All of America’s financial powerhouses, pundits, and media leaders believe that America is in the middle of a super-growth cycle, that there will be no reverting to the economic mean this time, and that the impressive momentum behind US dominance can go on and on and on. Not only permabears, but contrarians, have their doubts.

While it is true that recessionary fears have proven themselves wrong over the last several years, America’s stock market cannot continue levitating forever. It cannot simply shrug off America’s massive deficits, unrepayable debt, escalating global economic wars and the military expansionism of its enemies. One explanation for the irrational exuberance shown by America’s investors is media hype. Americans have contented themselves with the unsupportable illusion that unmitigated economic growth lies ahead. But for how long? Despite Cassandra’s rosy predictions, there is ample evidence that now is a time to invest for safety rather than heady profits: in the $6.2 million price paid by a crypto investor for an “artwork” of a banana attached to a wall with adhesive tape (which he subsequently ate); for the >200% Dogecoin gain since the November 5 election [ED NOTE: For those unfamiliar with Dogecoin, it’s a crypto coin created as a joke that now is “worth” $66 billion]; for the almost 50% post-election gain in Bitcoin (and >450% gain for MicroStrategy stock, a leveraged bet on Bitcoin); for legalized sports betting that is the “fun” part of Reddit and meme “sure thing” stock market and crypto gambling; etc.

The imminent threats to an ever-rising stock market are everywhere. They include President Trump’s forthcoming tariffs. Will they be pro-growth or anti-growth, inflationary or deflationary? No one knows. President Trump has promised mass deportations. How will they impact on the agricultural, meat-packing, construction and related industries? Can tariffs and deportations really be a net positive? What effects will forthcoming tax changes have … and on which groups? The wealthy surely will get wealthier, but what about the rest of America? What will deregulation do? Will the US Dollar weaken as President Trump wants or will it strengthen because making America great again necessarily means making the US Dollar even greater? What about AI? And the energy necessary to power AI? Housing and mortgage rates? And what will the Federal Reserve do in response to these changes? These are only some of the known unknowns. What about the unknown unknowns?

Aside from these domestic variables, there are the international ones where imbalances are even crazier. Not only is Israel at war with Hamas in Gaza, with Hezbollah in Lebanon, with Palestinians and Israeli settlers in the West Bank, and with Iran everywhere, but Islamic rebels (a designated terrorist organization) now are advancing against the Assad regime in Syria where Turkey and “Kurdistan” are being drawn more deeply into conflict. Is it possible for the Middle East to erupt into an even broader war? Asia also is on edge. China’s threats to invade Taiwan, its increasing military activities in the Taiwan Strait and the East and South China Seas, and its aggressions against the Philippines (and others) are multiplying global instabilities. Add to those this past week’s attempted coup in democratic South Korea, raising previously unthought-of risks. New “coups” in Georgia and Romania quickly followed as wobbly democratic institutions undermined by Russian propaganda and media manipulation ignited electoral chaos and violent protester-police confrontations. This at the same time as Western Europe is experiencing the collapse of France’s government, portending further instability. Speaking of Europe, let’s not forget the Ukraine War and the increasing group of EU nations supporting Russia. In Africa, civil war and a humanitarian tragedy are unraveling in Sudan with Russia increasing its military presence in an expanding crescent of Sub-Saharan nations. International uncertainties also are adding fuel to escalating trade wars in critical minerals and technology (and may well spread to agricultural products). What possibly could go wrong?

Cassandra was right in her 2022 prediction that the Ukraine War stalemate would be broken in 2024 by Russian battlefield superiority achieved through supplementary “Iranian and Chinese weaponry [paid for by] profits earned from sales of oil and gas to China.” Cassandra also was correct in predicting that Putin would successfully intimidate Europe and the U.S. into reducing Ukrainian support in what is yet another harbinger of intensifying problems for America and the world.

Permabears, although skeptical of Ray Dalio and his cycle-focused brethren, agree with Dalio’s conclusion that “When countries have big internal disorder, it is an opportune moment for opposing countries to aggressively exploit their vulnerabilities.” There are an increasing number of countries today with big internal disorder. It therefore is easy to understand why permabears are feeling colder. So, too, are contrarians.

Finally (from a good friend)