We have all had to make adjustments from time to time, both large and small. As evidenced by the number in our herd, we are a fairly adaptable species. So, while we resist making them, we are pretty good at it. Having said that, the adjustments we’ll have to make in the years to come are on a scale unlike anything anyone alive has ever seen before.

The picture right now

Right now, stock prices are rising despite the fact that over thirty million Americans have lost their jobs and The Federal Reserve has essentially nationalized the bond market. Rising stock prices are an indication that investors believe corporate earnings will rise in the future, and there are a few possible reasons for this.

One could be that the institutional investors who move the markets simply think that the government’s replacement for organic demand (that is, massive amounts of newly-minted currency to fund equally massive government borrowing) will carry corporate earnings and they don’t need the American consumer anymore.

Another could be that the investors buying right now are either betting that the government will continue using the tax revenues of future generations to prop up these companies, or that the consumption of the .10%, coupled with those future tax revenues, will be sufficient to drive earnings.

Make no mistake: another could not be that the collective American people are expressing their faith in the American way of life and buying stocks in support of that faith. This is not to say that we do not collectively have faith in the “can-do” spirit of American business and our way of life (though clearly, we are sharply divided about just what that way of life really is). What I am saying is that individual investors do not move markets. Markets are driven by institutional money. Period.

Whatever the source of buying in stocks right now actually is, it seems to me the reality of the shell game of borrowing from future generations to fund corporate executive lifestyles is unsustainable has become apparent. The financial media headlines read like the musings of an addict in denial: “Stocks rise on hope for new virus drug”, or “Stocks rise on optimism the country reopening.” The Fed is pulling out all the stops, but the damage in debt markets is done. Without the purchasing power of the American consumer, corporate earnings will contract.

The Animal House time of investing is over

Like Dean Wormer said to Flounder in the movie Animal House, ”Fat, drunk, and stupid is no way to go through life.”

Consumers, corporations, and governments alike have all become fat, drunk, and stupid over the last ten (or more) years but sh*t just got real. We have, collectively, been over-borrowing and over-spending for way too long to remember that this can’t go on forever because we are short-term, linear thinkers by our biological makeup. We learn by making mistakes. So, when institutions cover up the reality of the mistakes they’ve been making?—for decades—we lose sight of the lessons we’ve learned in the past.

Consumers everywhere, not just in America but ESPECIALLY in America, are going to be making adjustments in the months and years to come. This is going to be a very painful process for some. But the good news is we will get through it and as we acclimate, be better for it.

Even at this late stage, there are still things that can be done to make this process at least a little less painful. These things take effort, too, but sooner than later, we’re going to be making the adjustments on someone else’s terms if we don’t put in that effort ourselves first. And the sooner we sober up and get to work, the easier these adjustments will be.