RANCHO SANTANA, NICARAGUA – Let’s summarize… Herewith, the Dummies’ Guide to our Diary.
To begin, picking up where we left off yesterday… Can any government really make tomorrow better?
That’s why “the government that governs best, governs least.”
Markets and economies are natural things. Left alone, they evolve… they innovate… they run into problems and find solutions.
Allowed to happen… the future reflects the choices, bugaboos, fantasies, and desires of billions of people… all getting and spending… all making deals with one another… some erring… others having flashes of genius and moments of spontaneous kindness.
Putting them all together… and letting them do what they will do… what do you get?
But why can’t the feds make it better?
(And here, Dear Reader, you are getting a mini course in political philosophy worthy of a dead Greek.)
Tomorrow can take many different forms – so many that predictions about it are almost always wrong.
The great conceit of the political class – including all the many insiders, power brokers, media celebrities, elite Deep Staters, Biden and Trump supporters, and those who actually control our government – is that they can know what’s coming… and make it better even before it gets here.
This is rank absurdity, for obvious reasons.
First, they can’t predict the future any better than anyone else. And it is obviously impossible to improve something when you don’t even know what it is you’re improving.
Second, all they have to work with are fake money and real weapons – either force or fraud, in other words.
Neither has ever proved useful for creating a better world. Au contraire, always and everywhere, the more they were brought to bear on a society, the worse the outcome.
The fake money is what we’re watching. We’ve seen that it distorts and misleads. It never can, never has, and never will produce an improved future.
Our second observation of the week: We’re in a bubble… thanks to the Federal Reserve’s fake money. Stocks are way overpriced. And you know what that means…
Something will come along to prick this bubble. Poof! A lot of fake wealth will disappear.
Dear readers are advised to get out of the markets… or make sure they have some bubble insurance.
Our sidekick, Dan Denning, elaborates in our recent Bonner-Denning Letter (if you’re a paid-up Bonner-Denning Letter subscriber, click here to read), but the easiest bubble insurance is simply to sell high-priced stocks – especially the tech superstars – and buy gold, real estate, or other “hard” assets.
As we saw in yesterday’s Diary, stock prices, generally, are “off the charts,” by many measures. This is classic bubble territory. Taken all together, stock valuations are more than twice their “normal” level, implying at least a 50% loss somewhere in the future.
Yes… and it’s the “Silly Season,” when people begin to think that things that couldn’t possibly be true for a single minute will be true forever.
“Printing press” money can make stocks more valuable. Sure it can.
And if the government, which is already headed for another record deficit, gives away money… that will “stimulate” the economy. Sure it will.
And we don’t need to worry about inflation because our new Treasury secretary Janet Yellen knows how to deal with it. Sure she does.
Taken for Granted
Third: People are getting very tetchy about everything. A bunch of low-IQ yahoos break into the Capitol, and they call it an attempted coup d’état.
Russia and China are up to something… We know they are… We just don’t know what.
And as for the fake money… people come to rely on it.
Does it really make sense to give people “stimmy” checks? Previous generations would have taken it for absurd. But this generation takes it for granted.
They expect bailouts… and giveaways… And they get damned irritated if they don’t come.
More than that, they plan their lives around the bubble. They depend on the price of bitcoin to build their dream house. They need low interest rates – zero, in real terms – to refinance their mortgage and other debt. They expect to retire early on their pot stocks.
They think that if they all close their eyes and wish hard enough, all their preposterous, malign dreams will come true.
And they don’t appreciate anyone who dares to contradict them.
We recall in 1999, we suspected that the dot-com revolution was more like the mob invasion of the Capitol than a real revolution. Readers wrote to heckle and moan. They were counting on their dot-com profits.
Again in 2007/2008… nobody wanted to hear that “house prices don’t always go up.” Then, the average house was selling for more than the average person could afford.
But many people thought they had a right to “an ATM machine in the bedroom.” They bought houses with “cash out” mortgages and then “took out equity”… and lived on it.
Again, we have the advantage of being privy to a whole company full of analysts and advisors… and feedback from thousands of dear readers.
Many people – even those who are otherwise sane – are convinced that these stock prices – especially for tech companies – represent a New Era, where “trillion-dollar” companies will make True Believers rich.
Maybe we are too old. Or maybe the True Believers are too young! Most of them are under 40, which means they were born after the last major bear cycle ended (in 1980).
Tesla – a $10 stock? Inconceivable. The Blockchain – BS? Not possible. Stimulus – fake… foolish… and futile? Oh c’mon… You’re kidding, right?
But we’re not kidding. And now, we’re seeing a kind of zaniness all up and down the capital structure.
Take individual stocks – GameStop, Tesla, and Tilray come readily to mind. Nobody in his right mind could think their market valuations represent a fair calculation of future earnings discounted to present value. They’re all basically losing money… and probably always will.
Tilray – are they joking? What is a company that produces nearly half a billion in losses on only $200 million in sales worth? Nothing. Zero. Squat.
And yet, pot-addled “investors” gave it a market value over $10 billion this week… What can we say? Far out, man…
And look at bitcoin. In the early stages, people thought of it as a bet on a new money system, in which the cryptocurrency – despite having no physical existence, but limited by mathematical wizardry – would prove superior to gold.
That could still turn out to be true…
Or, it could turn out that the price action in bitcoin is really just another of the many puffs of smoke coming out of the Fed’s Vesuvius. When this baby blows… bitcoin could go with it.
Stay tuned for more of what we think we know now… on Monday.
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