Mad world

A Markov process of unfortunate events

It’s been quiet of late, what with the U.S. government shutdown limiting data and the collective unconsciousness of the great unwashed pushing on with day to day living, each in their own silo, there hasn’t been much to observe.

The number of vacant houses for sale in the U.S. keeps growing.

Consumer credit growth is not growing but contracting.

Layoffs have started rising more significantly after threatening to do so for the last couple of years.

Most layoff announcements come with a mention of A.I., which is management’s way of trying to sell the cost reduction as productivity growth rather than weaker sales, i.e. the mention of A.I. is just spin.

In that vein, the following chart has been doing the rounds.

However, the advent of mainstream A.I. is more correlation than cause. That’s 5 million job openings lost over the last 2 years, which is considerably beyond A.I.’s real-world impact so far. The other truth that has been slipping out with layoff announcements is the over-hiring done by companies in the wake of Covid.

Here’s further evidence that the economy and households have deviated from the stock market without the need of A.I.

Inflation and interest rates have driven household behavior by squeezing cash flow, which has caused flat economic activity for a few years now.

But the stock market keeps pushing on, disregarding the economy entirely.

That’s largely due to Covid’s lockdown bringing in a global army of day-traders to the stock market, and the stock market delivered them a whole bunch of easy gains. Anyone who has trained a child is aware of the concept of positive reinforcement, and these traders have received a superfluity of it. Add to that the ability to spread their success via social media and the mania has reached extremes.

Everyone is a genius in a bull market

“A rising tide floats all boats”, it is said, but the current tide is even causing those boats that are full of holes to float better than those without.