Markets crash not from “bad news” but from the exhaustion of temporary stability.
Yesterday I made the case for a Financial Singularity that will never allow stocks to crash. We can summarize this view as: the market and the economy are not systems, they are carefully controlled monocultures. There are no inputs that can’t be controlled, and as a result the stock market is completely controllable.
Today I make the case for a crushing stock market crash that isn’t just possible or likely–it’s absolutely inevitable. The conceptual foundation of this view is: regardless of how much money central banks print and distribute and how much they intervene in the markets, these remain complex systems that necessarily exhibit the semi-random instability that characterizes all complex systems. This is a key distinction, because it relates not to the power of central banks but to the intrinsic nature of systems. One of the primary motivators of my work is the idea that systems analysis can tell us a great deal about the dysfunctions and future pathways of the market and economy. Systems analysis enables us to discern certain pathways of instability that repeat over and over in all complex systems–for example, the S-Curve of rapid growth, maturation and diminishing returns/decline.
This post was published at Charles Hugh Smith on THURSDAY, SEPTEMBER 04, 2014.