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Friday, February 26, 2021

What Happens After ‘The Churn’?

Authored by Tom Luongo via Gold, Goats, ‘n Guns blog,

If you’re a fan of The Expanse (and if you aren’t you should be) you’ll be familiar with the term The Churn. The Churn is the controlling idea for Amos Burton, whose only defining ethos is survival.

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Simply put, The Churn is that moment when, “the rules of the game change.”

Which game?

Amos: The only game. Survival. When the jungle tears itself down and builds itself into something new. Guys like you and me, we end up dead. Doesn’t really mean anything. Or, if we happen to live through it, well that doesn’t mean anything either.

Embedded in Amos’ idea of The Churn, however, is that while the rules change, society itself keeps on keeping on. So many people right now are trying to analyze the political situation in terms of The Churn, the normal ebb and flow of who has the upper hand in the power struggle.

The impeachment idiocy on Capitol Hill is your prime example of this. Petty bureaucrats like Pelosi and Schumer are still thinking in terms of their political futures, the normal rules for using leverage to secure their Party’s future.

Mitch McConnell still thinks playing the role of controlled opposition will keep the fundraising up for the mid-terms. Nikki Haley is already texting people for money for her 2024 bid as the magic GOP brown woman who will save the party after ousting the demon Trump.

And too many people are still caught up in The Churn of the daily headlines to see the much bigger picture of what’s unfolding.

Because, what if, like Amos mentioned in the most recent episode, that this isn’t just The Churn?

The changes happening are something different, something foundational.

But only a few of us have had this realization?

What would that look like?

Would that look like a stock market drifting vaguely higher as Treasury bond auctions tail by a few basis points?

Would the normal Churn of Italian politics only briefly cause a spike in yields, because, change at the top will not be allowed?

No change at the top of Germany is exactly what is on the docket for later this year as Armin Laschet won the latest beauty contest to replace Angela Merkel as the head of the CDU.

So, one week the euro is sliding off the edge of the world and the next everything is normal because Christine Lagarde said so?

But no one has really taken in yet the severity and swiftness with which Joe Biden’s staff have taxed his right arm with all the Executive Orders he’s signed and what they mean.

Because these things take time to filter through our lens while we remain mostly in shock at the enormity of the changes which have occurred since the election.

And, I’ll be honest, as ahead of the curve as I like to believe I am about these things, I’m beginning to have doubts even I understand the extent to which the world is changing before our eyes.

I feel a lot like Amos right now finally realizing I’m walking through a post-civilizational landscape where everything looks normal but it isn’t. In his case violent Communists from the fringe of the solar system dropped asteroids on Earth.

For him this was a step-function change. But for many in our world the changes happening aren’t quite so profound yet. The lights are still on, there’s still food in a lot of our fridges.

It looks from where I’m sitting, the markets haven’t woken up to these changes yet. Because of the size and scope of the changes, and just how much of their valuation is a reflection of the false information being fed into them by stupid AI algorithms, the speed at which this realization is happening is far slower than we want to admit.

Normalcy bias is real. Markets never want to believe that cooler heads won’t prevail, because they always have before. But what happens when someone drops a rock from space on us, metaphorically?

How do we react to that?

Would it look like Iron Ore futures at 10-Year highs?

Lumber prices looking like they are a yo-yo in the hands of a sugar-addict?

Or a new technology like bitcoin repricing the world in terms of tangible assets which can’t be counterfeited becoming the vessel of hope for people who were ahead of the perception curve?

If that’s the case what’s gold’s problem?

We all know what it is. It’s the same problem everyone else has, the dollar and the people who print them.

Supply chains are breaking, commodity inflation is real, not just because printers go brrr, but because they’ve broken the world on purpose and believe they are the only ones who can put it back together.

I wouldn’t bank my retirement on that. Betting the ‘over’ on central planning incompetence has always been a one-sided trade for me.

Guys like Amos are as good a metaphor for markets as you can get. Amos is just like capital, going along with The Churn ,hitching a ride on whatever the best option is in front of him without a real plan.

And right now capital is walking around in a daze, looking for shelter in a winter wasteland. The people in power continue keep issuing commands, fearful we’ll stop listening to what they have to say.

So they scream louder that they are relevant while more wake up to the reality every day that they are as clueless as the rest of us. I figure we have another six to ten weeks before that reaches critical mass.

Those of us who adapt to this new reality the fastest will be the ones who will survive. Because thinking we’re still in The Churn is a recipe for getting run over.

*  *  *

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