Inside The Global Matrix

A Blog by Lew Santelises

Why The Matrix Metaphor

Have you ever made an investment in a stock or real estate property and you just knew that the value would go up only to watch it go down and down and down?

The problem is The Matrix. Except here they are not machines. In the world of investing, the matrix is made up CEOs, real estate promoters, tech and biotech entrepreneurs pitching IPOs, central bankers, banks, mutual funds, insurance companies, heads of state, and other intermediaries, telling you that everything is going to be okay. And of course the biggest promoter of all, Wall Street. The sum total of all their promoting, usually to buy, but once in a blue moon to sell, creates a system that is very similar to the matrix in the hit movie, The Matrix.

So how does the Matrix make you its energy source? By sucking your monetary energy out of you to keep itself going. It does this to you when Wall Street charges both retail and institutional investors huge intermediation fees for mutual funds and investment banking. It does this by offering you the Blue Pill so that you feel the need and so that you feel its right to continue to trade, turnover, and re-balance your portfolio, of course taking huge fees for themselves in the process. It does this by leaving the punch bowl with you, as Greenspan puts it, so that you consume more than you should, skewing your judgment. And by doing so, this global financial matrix dilutes your wealth with cheap money and inflation. It does so when incumbent managers helps themselves to the corporate cookie jar with golden parachutes and all kinds of perks at you, the stockholder’s expense.  And of course just like The Matrix, the real power of this extant Global Financial Matrix lies within its power of deception. By creating an appealing and aesthetically inviting picturesque world, the Global Financial Matrix is able to lure and lull you into a state of self-delusion and into a world where you believe what you want to believe (the Blue Pill). And while you are lying semi-comatose in the state, it’s sucking you dry of your financial energy, your money.

To be fair, taking the Red Pill is not without its own challenges. Once consumed, your eyes are opened to the truth and you see the financial world as it really is with all of its debris, flotsam and jetsam, half-torn down buildings and overall darkness. Once you take the Red Pill and your eyes are opened to the truth of how the real world actually looks and not as it appears, you become an outsider, a type of marauder or buccaneer whose purpose and goals are now in opposition with the purposes and goals of the Matrix system and its inhabitants.  The difference though is that now you are free. Free to make your own choices. Free to go wherever you want, when you want. Free to think independently. And most of all you are given the opportunity to reject blissful ignorance and the choice to become free from fear, unbelief, and doubt. The Matrix will tell you to play it safe and stay in the utopian world but that isn’t real so that it can suck you dry. Buy whole life insurance it will tell you because you won’t lose your money. It’s safe. Buy a CD earning 1% interest which is about 100% less than the rate of inflation. But at least your money is safe. Is it safe? Losing 1% per year on your money is not what I would call safe.

At one critical point in the film the Matrix, Morpheus starts out his explanation to Neo of how the Matrix came to be by saying, “We marveled at our own magnificence.” It seems axiomatic to halcyon days that we tend to innovate so far out until we begin to lose touch with reality. This was true of Tulipmania and also of the crashes and insolvencies of large corporations and banks that spawned the Great Recession. The irony is that over-innovation, just like the Matrix’s AI singular consciousness, takes on a life of its own and works to enslave us. The best example that comes to my mind is that banks do not lend in bad times when borrowers are more cautious and prudent. Instead, they lend during good times when borrowers take on more risks and are even Pollyannaish of their view of the future. And then they begin to design exotic financial products so they can lend even more. In so doing, as banks become more profitable through increased lending, they relax loan underwriting requirements and give out more loans, only of less quality. With both banks and borrowers now highly leveraged, a credit bubble emerges. Introduce the banking version of the AI race of machines: By continuing to innovate financially, usually through the design of unilateral contracts and financial instruments that benefit financial institutions more than they do end users, a type of Financial Global Matrix emerges. In this version of the Matrix, just as we can now read about in the annals of the financial history when we revisit Tulipmania or the Great Recession, excessive optimism is the new world order of the day. The Matrix tells our mind that things will always be, look, and feel this good. So we reply to our minds that we can borrow more. We don’t have to save for a rainy day because, their won’t be any rainy days. As our stock of debt at both the national and consumer level grows and our savings, capital reserves, and currency reserves are depleted, we become blinded to the truth. The truth which was so eloquently put forth by Morpheus, is that “you are a slave Neo. Like everyone else you were born into bondage. Born into a prison that you cannot smell or taste or touch. A prison for your mind.” The Race of Machines in the movie enslaved you to suck all of the energy out of your body so that they can survive and live well. The race of machines that are the designers of today’s Global Financial Matrix also suck you dry. But it’s not your cells they want so that they can convert it into energy so they can live. No. this new race of machines wants to suck you dry of all your money. This new race of machines are some (not all) banks.  These are the ones that practice predatory lending and offer you credit cards, auto loans, and mortgages that are 29%, 20%, and 15% or higher, respectively.

This new race of machines are some (not all) mutual funds. These are the ones that charge ridiculously high fees while providing you with very low rates of return on your money.  This new race of machines are some (not all) hedge funds that volunteer to babysit your money for high fees while providing you a lower rate of return than what you could have earned by just buying the S & P index.  This new race of machines are some (not all) global banks and supra-national organizations. These are the ones that promise to bail you out by offering you more debt. This time with stricter covenants which only work to throttle your efforts to revive your economy or industry.  In effect, they are offering you the deal that Jacob offered to Esau. “I will meet your basic needs now, just give me your entire future in return.” Whether by accident or by design, this new race of machines runs the Global Financial Matrix and its singular purpose whether you are an individual, a company, or a sovereign country, is to enslave you through debt. But not just any kind of debt. Some debt is good and helps those that get into a bind or who can use it wisely to improve their station in life. No. I am talking about predatory and usurious debt that may seem innocuous on its face, but are deals that the authors of them themselves, would not make for themselves. The conditions created by this new race of machines is what George Soros refers to the creation of a Boom-Bust cycle that developed nation economies must all now endure. In my next blog, I’ll talk more in depth about these cycles and what they mean for you the investor.