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Remember: In A Crisis, Everyone Will Consider Themselves 'The Good Guys'

Zero Rss
2 months 3 weeks ago
Remember: In A Crisis, Everyone Will Consider Themselves 'The Good Guys'

Authored by Charles Hugh Smith via substack,

The state has two monopolies it must protect whatever the cost: the monopoly on decreeing what is legal tender and on force.

We’re entering an era in which push comes to shove will lead to immovable objects encountering irresistible forces. All sorts of verities and vanities will be bulldozed as kicking the can down the road descends into desperation to stave off collapse, a desperation that unleashes second order effects the desperate did not anticipate. The only responses at this late stage are even more desperate, so desperation is self-reinforcing.

The previous eras of institutional-state desperation were 1) The 1930s Great Depression, 2) the 1973-74 Gas Crisis and 3) the inflationary recession of 1980-82. The desperation in the 1930s was truly serious: banning private ownership of gold other than coin-collecting, attempting to remake the Supreme Court, one new federal program after another, slashing the wages of municipal / city employees to keep as many people employed as the shrinking revenues could allow, and so on.

The desperation of the 1970s and 80s were relatively narrow in scope, but felt serious at the time: gas rationing and wage/price controls in the 1970s, and then rocketing bond yields / interest rates in the early 1980s that triggered millions of layoffs in interest-sensitive sectors such as autos and housing.

The strong-arm policies of the 1970s and 1980s worked, and were relatively brief. The crises lasted around two years, and then things normalized.

The strong-arm policies of the 1930s didn’t work, and desperation slid into despair. The official happy-talk continued, but it rang increasingly hollow as the decade ground on.

Given the present-day confluence of disintegrative forces, a.k.a. mutually reinforcing polycrisis, hopes for a brief recession and a quick return to “growth” may be misplaced. If inflation and scarcities intensify, the usual bag of tricks--dropping interest rates to zero, flooding the financial sector with credit / liquidity, increasing federal pork spending, etc.--will not just fail, they will be counter-productive, fueling inflationary forces not in assets that enrich but in real-world goods and services that impoverish.

The footprint of the Central State--and state/county/local government--was relatively modest in the 1930s compared to the footprint of the state now: 36% of GDP in the US (23% federal, 13% state/local) and much higher in many developed nations.

Note that in a recession, GDP drops and state spending tends to rise to compensate for the contraction of private sector spending. so this ratio can climb very quickly.

To a degree few question, the state is the nation. The nation is defined by the state’s legal structure and its ability to enforce that structure. If the state collapses, the nation is in dire straits.

Should the state’s finances enter a self-reinforcing death-spiral, the desperation will quickly reach a level in which nothing is off the table--no extreme is too extreme. The typical self-reinforcing death-spiral is a currency crisis in which the currency loses value so rapidly that everyone holding it wants to convert it into some other form of value. That selling is self-reinforcing.

But that doesn’t exhaust the possibilities of the state’s finances becoming unsustainable, either financially and/or politically. A slow-moving crisis can phase shift into a fast-moving crisis like an avalanche no one is prepared for.

States face an insoluble dilemma: the powerful interests that dominate state decisions find higher taxes on corporations, trusts, foundations and the wealthy unacceptable, while the public living off the state’s largesse finds cuts deep enough to matter unacceptable.

Recency bias kicks in hard: after decades of “growth” and expanding state spending, anything that smacks of discipline or sacrifice is rejected out of hand as needless: why can’t we just go on as we have for the past 17 years, where assets soar in value, and the state spends more every year?

This leads to the illusory “solution” of kicking the can down the road: monetary policy tricks, fiscal sleight of hand, fake policy-tweak fixes presented as “solutions,” and so on. This magic can prop up the illusion of sustainability for years, but since every trick eventually makes the problems worse, this illusory “solution” actually hastens the push comes to shove moment where everyone is seated at the banquet of consequences.

Those tasked with saving the state’s finances from collapsing will view themselves as absolutely The Good Guys, working to saving the nation from greedy leeches on the state, speculators, financiers and those hoarding wealth acquired back when the state could afford to be generous. Now that things are at risk of unraveling, the fun and games are over and we need to do whatever it takes to save the nation--i.e. the state.

The wealthy trying to evade the new taxes will consider themselves The Good Guys: we worked hard for our wealth, created jobs and innovations that benefited the nation. Why should we give our hard-earned wealth to a corrupt, spendthrift state?

In the lower reaches of the economy, those evading taxes will also see themselves as The Good Guys: I’m just trying to support my family, and it’s the rich who should make the sacrifices as they have more than enough.

Those enforcing the expropriations / taxes will develop a unit-cohesion us-vs-them esprit de corps--the ultimate Good Guys who have to put up with both sets of greedy weasels: the weasels sucking off the state and the weasels trying to evade their civic duty to pay what they owe. Their tolerance for the self-serving claims of being “the good guys” by those protesting massive cuts in state spending and massive increases in taxes will be low to start and drop from there.

The state has two monopolies it must protect whatever the cost: the monopoly on decreeing what is legal tender and on force. So when the NSA is tasked with ferreting out miscreants cheating the state, tax-evading millionaires and other federal agencies are tasked with renditioning those who reckon they evaded their responsibilities by fleeing overseas, these are the tip-of-the-spear Good Guys who are trying to save the nation from the terminal rot of a citizenry that has long since lost any sense of civic duty that demands sacrifice and frugality.

Should push come to shove, nothing will be off the table. It will be too late to whine that we’re one of the Good Guys; the money from the state will stop flowing, and the safety deposit boxes and overseas accounts will be opened by force. As the cries of anguish increase, the demands to close down the tax havens of the super-wealthy will reach fever pitch, and whomever is tasked with saving the nation will have an agenda that reverses the order and the priority of wealth and power.

The super-wealthy are safe until they’re understood as the key impediment to saving the state. Right now, nobody thinks push could come to shove to the point that nothing will be off the table in terms of force. States that wait too long to act find their ability to apply force is insufficient to save the state, and this will weigh ever heavier on those tasked with protecting the state from financial collapse.

The irony here is the forces protecting their self-interests by kicking the can down the road are hurrying the collision of immovable objects and irresistible forces. Those who reckon they’ll do fine if the state collapses will find themselves nostalgic for the days when they could whine about a tax on second homes worth in excess of $5 million.

Chaos Unleashed: When “Irrational” Makes Perfect Sense.

I’m not saying I “like” this or that it’s inevitable; I’m saying the longer illusory “solutions” of kicking the can down the road are substituted for real solutions, the more likely a crisis of the state’s financial coherence becomes. Betting on which one wins--immovable objects or irresistible forces--might be a lose-lose proposition.

The only dinosaurs that survived the meteor strike were small birds that didn’t need much to get by, were mobile and were adapted to tough conditions. The descendants of those birds are the ones we see today.

How birds survived the dinosaurs’ doomsday (Scientific American)

Tyler Durden Sun, 05/17/2026 - 10:30
Tyler Durden

Wokeness in higher education is still alive and kicking

NY Post
2 months 3 weeks ago
Ballots went out last month for leadership positions at the American Sociological Association. Here’s some advice for candidates: Emphasize your Diversity, Equity, and Inclusion credentials. Among the past 13 ASA presidents, 11 were women, and 2 were black men. Among the past 11 vice presidents, 10 were women. One was a white man. In addition,...
Naomi Schaefer Riley, James Piereson

Americans Face The Highest Memorial Day Gas Prices On Record

Zero Rss
2 months 3 weeks ago
Americans Face The Highest Memorial Day Gas Prices On Record

The nationwide average price of regular gasoline marginally increased on Thursday, after five straight days of decline, the American Automobile Association (AAA) said in a May 14 statement.

The national average price is “at the same range as it was in 2022, the year gas prices hit record highs. Travelers are preparing to hit the road in record numbers next week, and drivers will be facing the highest Memorial Day gas prices in four years,” AAA said.

On Friday, prices declined less than a cent to $4.52 per gallon from Thursday’s $4.53. In six states, average gas prices exceeded $5: Illinois, Nevada, Alaska, Oregon, Hawaii, and Washington. Prices exceeded $6 in California. Texas had the lowest price at $3.99 per gallon.

While Thursday’s average gas price was lower than last week’s, prices at the pump continue to remain elevated as crude oil hovers around the $100 per barrel price level.

With prices near record highs as Memorial Day looms, Naveen Athrappully reports for The Epoch Times that the federal government has taken various measures to ease the pressure on gas prices.

On May 11, the Department of Energy (DOE) announced that it would loan 53 million barrels of oil from America’s Strategic Petroleum Reserve to petroleum companies.

“Deliveries will begin immediately as the Department continues to move swiftly to address short-term supply disruptions and strengthen U.S. energy security,” the DOE said.

Earlier, the U.S. government had removed sanctions on Iranian and Russian crude oil stranded at sea to ease the global oil supply shortage.

In late March, the Environmental Protection Agency issued a temporary fuel waiver allowing gasoline with higher ethanol blends to be sold nationwide beginning May 1 to curb rising prices. The waiver will remain in effect until May 20.

Since the U.S.–Iran war began in late February, Tehran has repeatedly attacked and threatened commercial ships in the critical Strait of Hormuz, a waterway located south of Iran through which over a fifth of global seaborne oil trade is transported. This has disrupted shipments through the strait, pushing oil prices higher.

On Feb. 27, a day before the conflict began, Brent crude oil futures closed the day at around $72 per barrel. On May 15, oil was trading at around $108 as at 9:10 a.m. ET.

Washington and Tehran have yet to negotiate an end to the war, which has kept markets tense and oil prices elevated.

Tight Oil Market

Since the start of the war, crude oil output from OPEC has fallen by more than 30 percent, the group said in a May 13 report.

Current OPEC output is at 18.89 million barrels per day, down from 28.65 million barrels before the conflict broke out. The organization cut its outlook for the year, predicting global crude oil demand would grow by less than 1.2 million barrels per day, down from its previous forecast of 1.4 million barrels per day.

However, “global economic growth continues to show resilience for this year despite geopolitical tensions,” the report said.

In a May 14 post, ING Bank said that the oil market is “eagerly awaiting” the outcome of the meeting between President Donald Trump and Chinese leader Xi Jinping. Trump’s summit in China ended on May 15.

“The market could be pinning too much hope on the US–China talks yielding some positive results on Iran,” ING said.

“Some hope that China could exert pressure on Iran to reach a deal with the US, to end the war and lead to a resumption of energy flows through the Strait of Hormuz.”

Morgan Stanley said in a May 12 report that the risk of prolonged oil supply disruption, especially around the Strait of Hormuz, has now increased.

Prior to the conflict, around 32 ships used to traverse the strait daily between January and March, a number that crashed to roughly two during March–April. There is now a 12 million-barrel-per-day shortage in global oil production.

“While a 12 million barrel-per-day difference may not appear large in a global context, it represents the largest supply shock since the 1970s OPEC oil embargo,” Morgan Stanley said.

“Further, its persistence amplifies the risk of broader economic impacts. Moreover, the timing of this disruption further compounds the issue, with the gasoline-heavy summer driving season (May through August) quickly approaching.”

Tyler Durden Sun, 05/17/2026 - 09:55
Tyler Durden

Market Leadership Is Narrow, Increasing Summer Risk

Zero Rss
2 months 3 weeks ago
Market Leadership Is Narrow, Increasing Summer Risk

Authored by Lance Roberts via RealInvestmentAdvice.com,

📈Technical Backdrop – Friday Selloff Tests The Tape

The S&P 500 closed Friday at 7,408.50, surrendering Thursday’s historic first close above 7,500 with a 1.24% decline. The semiconductor names that powered the rally became the source of Friday’s selling. Intel fell 5%, Micron 4%, AMD 3%, and Nvidia 4.4%. From a purely technical standpoint, Friday’s reversal was the first real distribution day in three weeks and the mean-reversion signal we have been flagging.

The deviation numbers are the story. At 7.0% above the 50-DMA (6,921) and 9.3% above the 200-DMA (6,780), the index is stretched to a degree that has preceded every meaningful pullback over the past two years. The RSI, however, tells a more nuanced story: at 67.15, it has already pulled back below the 70 overbought threshold. Friday’s selloff did real work in resetting the oscillator. The MACD, while still positive at +1.54, has narrowed significantly from the 40+ readings earlier in the week, with the signal line (148.10) now nearly converging with the MACD line. A bearish crossover is likely on Monday, even if the market stabilizes.

The erratic style rotation we discussed in this week’s Daily Market Commentary, value leading Monday, growth getting slapped Tuesday, then flipping again on Wednesday, intensified into Friday’s close. Single-stock implied volatility is running 2.5x the index VIX, meaning the calm headline masks violent sector-level moves. The gamma feedback loop driving the semiconductor surge works in reverse on the way down: when call flow dries up, market makers sell the underlying to flatten their books. Friday’s action in MU, AMD, INTC, and NVDA is the process beginning.

The bull case: the primary trend is up, the RSI has already pulled back below 70 without breaking any support, and the 20-DMA at 7,260 should attract dip buyers on an initial pullback.

The bear case: the 7% and 9.3% deviations above the 50- and 200-DMAs are extreme, the MACD is on the verge of a bearish crossover, and the gamma unwind in semiconductors has only just begun. 

The base case is a pullback toward the 20-DMA (7,260), not a breakdown. A deeper correction to the 50/100-DMA cluster near 6,913–6,921 would represent a 6.6% decline from Friday’s close, painful but technically healthy. Use the 20-DMA as the near-term line: a close below opens 6,921 quickly. Trail stops, take profits in extended names, and use any test of the moving average cluster as an opportunity to add.

💰 Market Leadership Is Narrow

Tech is carrying the tape. Most other sectors aren’t. Here’s what history says about that setup, and how we’re positioning around it.

Look under the hood of this year’s rally and the tape isn’t nearly as healthy as the headline number suggests. The S&P 500 sits up roughly 8.4% year-to-date through Friday’s close, but the strength is being carried by a small group of sectors doing all the heavy lifting. Technology is up north of 23%. Healthcare is down almost 8%. Financials have given back more than 6%. Equal-weight, which gives every name an identical vote, has only managed about 6.5%. That gap is the story of 2026 so far, and the story has a name. Narrow market leadership. We’ve seen this movie before, and the ending is rarely as clean as the bulls would like to believe.

Chart of Equal Vs Market Cap Weight

The clearest sign of narrowing market leadership is the spread between the cap-weighted S&P 500 and the equal-weight version. The cap-weighted index, where Apple, Microsoft, Nvidia, and a small group of mega caps carry outsized weight, has outpaced equal-weight by roughly 200 basis points in just over four months. That sounds modest until you remember both indices hold the same 500 companies. The entire performance gap is a weight effect. A handful of names are doing the work for the whole index.

Drill into the table, and the picture sharpens. Technology and Energy are doing the bulk of the index’s heavy lifting, but the way they’re doing it matters. Energy carries just over 4% of the S&P 500 by weight. That’s one of the smallest slots in the index. The sector is the year’s best performer at nearly 28%, but at a 4% weight, even a stellar return only adds about a percentage point to the index. Technology is the opposite story. Tech accounts for roughly a third of the index by weight, and at +23.5% YTD, it alone accounts for the better part of three-quarters of the year’s gain. Strip Tech out, and what’s left of 2026 looks closer to a market in retreat than a market grinding toward new highs.

The bigger problem lies with the heavyweights who aren’t pulling. Financials, the second-largest sector at almost 13% of the index, are down 6.5% year to date. Healthcare, the fifth-largest at 9.5%, has dropped almost 8%. Communication Services at roughly 10% is slightly negative. Consumer Discretionary at nearly 10% is flat. Those four sectors together represent more than 40% of the S&P 500 by weight, and, as a group, they’re a drag rather than a contributor. The bull market isn’t getting help from the heavyweights that should normally be participating, and the dispersion chart above is the visible result.

Here’s why that matters. Sustainable bull markets pass the baton. When Tech gets tired, Financials or Industrials step up. When growth stumbles, value takes over. Right now, the second, third, fourth, and fifth largest sectors of the index aren’t passing the baton. They’re sitting it out. Without those sectors starting to lead, or at minimum starting to participate, this bull market becomes much harder to sustain. The index can ride one sector for a stretch. It can’t ride one sector forever, and that’s exactly what narrow market leadership looks like before it cracks. This isn’t a broad bull market. It’s a Tech-led tape with a thinning bench underneath.

Historical Precedents For Narrow Market Leadership

History gives us several clean playbooks for what happens when market leadership concentrates this aggressively into one or two sectors. The first is the Nifty Fifty of the early 1970s. Roughly fifty large-cap growth names carried the index higher into 1972 while the average stock had already started rolling over. When the bear market hit in 1973-74, the Nifty Fifty names lost 45% or more, and the broader index drew down nearly half its value, as participation had been weakening for months beforehand.

The second is the late-1990s dot-com era. By 1999, technology was running away from every other sector. Breadth deteriorated sharply through the back half of that year. The advance-decline line peaked well before the S&P did. When the unwind came in 2000, the Nasdaq lost 78% of its value over the following two and a half years. Importantly, defensive sectors actually outperformed through the worst of it. The third, and the one most relevant for current conditions, is 2021. Mega-cap technology drove the indices to fresh highs while small caps and cyclicals quietly topped out months earlier. The Russell 2000 peaked in November 2021. The S&P 500 didn’t peak until January 2022. The market then spent most of 2022 catching down to what breadth had already been telling investors.

In every one of those cases, narrow market leadership wasn’t the cause of the downturn. However, it was a reliable warning that the underlying participation was thinning out before price followed.

“Investors who own the cap-weighted index right now think they’re diversified across 500 names. In practice, they own a concentrated bet on roughly ten companies with 500 tickers attached.”

What Narrow Market Leadership Tells Us About Risk

Make no mistake, narrow market leadership isn’t an automatic sell signal. Markets can run further than seems reasonable when momentum and passive flows pile into the same names. The 2024-2025 mega-cap run is a recent reminder. But narrow market leadership changes the index’s risk profile in a way most investors don’t appreciate.

Here’s the problem. The same passive flows that drive mega caps higher on the way up reverse on the way down. When the largest weights sell off, they drag the index down, and the already-thin breadth gets even thinner. Drawdowns under narrow market leadership tend to be deeper and faster than drawdowns from broad-based rallies, because there’s no rotation to absorb the selling. Volatility behaves differently, too. When leadership is wide, sector rotation cushions the index. When it isn’t, the index moves with whatever the top five names are doing. Risk goes up. Most investors don’t see it.

The fingerprints of that risk are clear when you look at how far the leading themes have moved from their long-term means. Reversion is mathematical, not optional. Eventually, prices come back to their averages, and when the deviation gets this stretched, the round trip is rarely small. The table below lists the most extended subsectors of the current market leadership rally, the 200-week moving average for each, and the percentage decline required to reset to that average.

Read the right-hand column. These aren’t 10% pullback numbers. Semiconductors and Quantum themes would need declines in the 50% to 60% range just to touch their 4-year means. The broad Technology sector, the heaviest weighting in the S&P 500, would have to give back roughly 40% to do the same. The Momentum factor itself sits 57% above its long-term mean, indicating the entire momentum trade is concentrated in the same overextended names. Energy, despite leading the year, looks comparatively reasonable at 29% above the mean. Mean reversion isn’t a forecast. It’s an arithmetic statement about how much price has been pulled forward into the current market leadership names. The deeper the deviation, the bigger the eventual round trip.

How To Position Around Narrow Market Leadership

What does this mean for portfolios? Pull the threads together. Tech alone accounts for roughly three-quarters of the index’s gain this year. The four heavyweight sectors below, which together account for more than 40% of the S&P 500, aren’t participating. The historical record for narrow market leadership runs to drawdowns of 35% to 78% in the leading sector. And the most extended themes inside this rally sit 50% to 145% above their long-term means. That’s the setup. The setup dictates the response.

This isn’t about predicting the top. It’s about making sure portfolios reflect what’s already been pulled forward. The actions below are what we’re doing in client books right now.

None of this requires calling the top. We aren’t bearish on the bull market. We are bearish on the assumption that this market leadership will remain durable for another 12 to 18 months without a meaningful reset. The arithmetic of mean reversion and the historical record of narrow tapes both point to the same conclusion.

Position accordingly.

🔑 Key Catalysts Next Week

This is the most important week of Q2 and possibly the year. Nvidia reports Wednesday after the close; the FOMC Minutes land Wednesday afternoon; Walmart opens Thursday morning; and Jerome Powell’s fourteen-year tenure at the Federal Reserve ends Saturday. Each of these events alone would dominate a normal week. Together, they arrive at a moment when the 10-year Treasury yield has surged to 4.55%, the highest in a year, and rate hike probabilities have climbed from 1% a month ago to 45% today. The regime is shifting in real time.

However, Wednesday is a collision day that will define the markets next week. The FOMC Minutes from the April 28–29 meeting drop at 2:00 PM, and they arrive carrying a question the market has never had to ask in this cycle: did anyone on the committee discuss raising rates? With core CPI reaccelerating, oil elevated by the Iran conflict, and the 10-year yield climbing, the minutes will reveal whether the internal conversation has shifted from “when do we cut” to “do we need to hike.” Any hawkish surprise, even a single paragraph acknowledging that hikes were discussed, would detonate the rate-sensitive trade.

Three hours later, Nvidia reports Q1 FY2027. Consensus expects $78.8 billion in revenue, 78% year-over-year growth, and $1.77 in EPS, both above the company’s own $78 billion guidance. But the Q1 number is almost beside the point. The real trade is the Q2 guide versus the $86 billion consensus, Blackwell ramp and GB300 Ultra timing, and any commentary on China H200 reopening after the export restrictions effectively zeroed out Chinese data center revenue. The stock has fallen on four of its last five earnings beats, and options are pricing a 5–10% move, in either direction.

Thursday is the consumer verdict. Walmart before the open is the definitive Main Street read. Estimated revenue is $172 billion, grocery share gains, e-commerce penetration, and critically, how much tariff and inflation costs are being passed through at the shelf level versus absorbed in margin will be key. This is where we learn whether the consumer held up through $100 oil and 4.55% Treasury yields or started to crack. Walmart’s full-year guidance will set the consumer narrative for Q2.

Bottom line: Nvidia tells us whether the AI capex cycle is still accelerating. The FOMC Minutes tell us whether the Fed is considering tightening. Walmart tells us whether consumers are surviving. And Saturday, a new Fed Chair takes over with a fundamentally different worldview. This is the week the narrative for the rest of 2026 gets written. Hedge your book before Wednesday at 2:00 PM.

Trade accordingly.

Tyler Durden Sun, 05/17/2026 - 09:20
Tyler Durden

zero rss