ZERO HEDGE - APOCALYPSE PRETTY SOON

Zero Hedge is the go-to website of an imminent financial collapse.  The writing is acidic, urgent, and apocalyptic.  The doomsday prophecy is hammered relentlessly and with ‘zero hedge.’   A recent day’s headlines are typical:  The $9 trillion US dollar carry trade is blowing up ; Q4 shaping up as worst quarter in years ; The dire state of our union; The lunatics are running the asylum ; Banksters’ Bullion - Crisis at New Extreme.  

The central conceit of Zero Hedge is that financial markets are artificially propped up by a lethal combination of fiat money, central bank intervention, collusion among bankers and regulators, and endless happy talk by the mainstream financial press, who are not reporters but cheerleaders who inflate asset prices.  The markets no longer reflect any fundamental reality, and at some point the illusions and pretenses must collapse in spectacular fashion.  Currencies will lose their value, home values will plummet, securities will spiral down to their true valuations, gold and other real assets like farmland will rise, and derivatives will suffer a cascading series of defaults that will make the last financial crash look like child’s play. 

This dire negativity is offset by an undercurrent of messianic libertarianism, the notion that only an apocalypse can purge the markets of artifice, trickery, and government meddling.

Although it attracts a lot of marginal types, Zero Hedge draws a surprisingly wide readership from the mainstream financial community.  In 2013, it hit the milestone of one billion page views.  Judging from the comments to the articles, the readership is a mishmash of anti-government tea party types, conspiracy theorists, anti-Semites (though the website has an anti-discrimination policy), libertarians, gold bugs, people who have lost their life savings in the markets, leftists who rail against inequality, and bemused Wall Street types.  I would include myself and my friends in the latter category. We know that Zero Hedge is over-the-top and a magnet for conspiracy theories, but we read it anyway. 

It is this phenomenon – the popularity of Zero Hedge - that is worth exploring.   Why do so many people read it?

Perhaps the answer is that Zero Hedge does something that the mainstream financial press fails to do, namely ask challenging and skeptical questions about the economy and the financial markets. For example, when the mainstream press proclaims the good news that the official unemployment rate is going down, Zero Hedge reminds us that these numbers reflect a historically low labor participation rate, so fewer people are actually working. When the government tells us that there is an economic recovery, Zero Hedge points out that the benefits have accrued only to the upper echelon. When the government tells us that its agencies are rooting out wrongdoing, Zero Hedge points out the revolving door between the regulators and the firms they are supposed to regulate. And many times Zero Hedge has been ahead of mainstream news in pointing out the inequities of high frequency trading, dark pools, structured products, rigged markets, and the downside of quantitative easing by central banks.  In this way, it provides a corrective skepticism lacking at Yahoo Finance, the Wall Street Journal, The New York Times, and CNBC.  Often, its case for skepticism is stronger than the case for optimism put forth by the mainstream press.

But reasonable skepticism is one thing, and fanatical negativity is another.  Zero Hedge refuses to recognize any good news.  As Rational Wiki wryly observed, “Zero Hedge has accurately predicted 200 of the last 2 recessions.” The fact that the financial collapse has not happened yet (and in fact markets have risen) does not count as evidence against the theory but, in true paranoid style, only serves to confirm that the apocalypse is being papered over in myriad ways.  One is reminded of Sigmund Freud’s story of a man who borrows a teapot from a friend and returns it with a hole; when confronted, he claims that there is no hole, that the hole was already there when he borrowed it, and that he never borrowed the teapot in the first place. Zero Hedge offers a similar closed circle of justifications in which the prophecy itself can never be wrong.  The crisis is definitely coming, or perhaps is already here and we don’t see it . . . yet.  It is hard to tell if Zero Hedge represents Apocalypse Now or Apocalypse Not Quite Yet .

The owners and operators of Zero Hedge are shrouded in self-imposed mystery, which is more than mildly ironic for a web site that bemoans the lack of transparency in financial markets.  The ostensible leader is Tyler Durden, a pseudonym drawn from the book and movie Fight Club.   When New York Magazine did a long expose of Zero Hedge in 2009, it found that Tyler Durden is likely the alter ego for an Eastern European immigrant who traded at a hedge fund before getting banned by FINRA. But when the magazine went further down the rabbit hole to interview people connected to the site, they found that Tyler Durden may not even be a single person but an amalgam of many contributors, and in any event, the ownership and administration is kept deliberately cloudy.  Despite these layers of intrigue and the outlaw posturing, the website purportedly generates a tidy income through advertising revenue. Today, for example, I was treated to concealed carry advertisements, invitations to open brokerage accounts, and exhortations to convert my assets to gold bullion.  Although Zero Hedge rails against the monetization of obscure asset classes, it has effectively monetized the financial apocalypse. 

The website’s self-affiliation with the novel Fight Club is instructive for how Zero Hedge doggedly refuses to see the moral ambiguities of celebrating an imminent financial crisis.  Fight Club is a brilliant book by Chuck Palahniuk about a depressed young man whose job is to crisscross the country as a forensic examiner of car accidents.  Versed in pyrotechnics, he uses a bloodless formula to decide whether it would be more cost efficient for the company to recall a faulty part or let people continue to die.  He is successful, intelligent, a cog in the wheels of a large company, and beset by insomnia that can only be cured by attending support groups where he pretends to suffer from fatal diseases so he can evoke true feelings from others.  Upon returning from a business trip he finds that his apartment has mysteriously exploded due to a complicated slow-burning pyrotechnic scheme.  Depressed and with nowhere to go, he creates an alter ego named Tyler Durden, a soap salesman who rails against conventional morality and politics. The two of them (in reality a single person) create an underground fight club where ordinary guys can escape the mannered and artificial constraints of modern life and awaken their long suppressed primal instincts. The fight clubs evolve to Project Mayhem, which is Tyler Durden’s scheme for a series of destructive acts that will force humanity to go dormant and break up civilization so that something better can be created.  A power struggle begins as the lead character starts to question his alter ego’s destructive impulses, and he attempts suicide after his alter ego sets into motion a plan to blow up skyscrapers and destroy financial institutions.  He survives and is placed in a mental hospital.

Fight Club is a powerful and subversive book, tapping into the widely felt notion that there is something insidiously wrong with modern life, with corporations, bureaucracy, and politics.  But the book itself (as opposed to Zero Hedge) pulls back from Tyler Durden’s notion that the only solution is a financial apocalypse, followed by, well, something .  It even implies that this may be insane.   At a minimum, the book suggests that we should be divided (literally) about whether the existing system is so rotten that it must be destroyed whole cloth.  But on Zero Hedge, there is minimal attention paid to other possible solutions to the status quo, such as increased regulation, redistribution of wealth, financial transaction taxes, penalties for offshoring, and so forth.  

In other words, the ambiguity in the novel is missing at Zero Hedge.  They take the side of Tyler Duren’s notion that only a disaster can restore ‘markets’ in the true unfettered sense. This is an essentially religious notion that the wickedness of the current order can only be cleansed in a calamity followed by a day of judgment.  Further, by lifting its motto from an ambiguous phrase in the book (“On a long enough time line, the survival rate for everyone will drop to zero”), Zero Hedge undercuts its own prediction of an imminent collapse on a short time line.

This is the fundamental dilemma presented by Zero Hedge.  It is a useful and often prescient corrective to mainstream financial reporting, but it comes with a lot of baggage.  A mysterious owner with a troubled past.  Demands for anonymity based on unproven fears of retaliation.  A vision of imminent apocalypse.  A messianic belief in a post-disaster libertarian state of nature.  A magnet for hackneyed and disturbing theories of worldwide conspiracy. 

I suggest that you read Zero Hedge, walk away enlightened and entertained, but leave the baggage behind.