Greg Canavan

[8 min read]

Dear Reader,

‘Supported by dubious history, and fearful of Australia’s geographical remoteness from the centres of civilization, with little or no analysis of the long term policy consequences available, the dominant part of the Australian political class was busy laying the foundations for a nation that would withdraw into itself, with political programs that, in the words of Alfred Marshall, had as little chance of achieving their objectives as the “potent medicines of the charlatan”.

‘The White Australia policy had already closed the country to coloured immigrants. Labour unions would make it clear than even non-coloured immigration might be undesirable. The tariff, as yet mild, in principle aimed at the restriction of trade, and Lyne and his supporters wanted it raised much higher. There were even extremists who urged “prohibition” of trade.

‘Democracy and distance were now encouraging a rampant parochialism in the policies of the new nation. Walls against the world were being constructed on the assumption that behind them, safe from competition in both products and labour markets, and from racial mixing, Australia would prosper.

‘“Orthodox economists” were ridiculed without a defence being offered. With the Melbourne University chair of political economy moribund, and no other department of economics on the continent, little contrary economic analysis was forthcoming from Australian voices.’

That’s an excerpt from David Kemp’s five-volume history of Australian liberalism. It’s from volume three, A Democratic Nation, which covers the period from 1901 to 1925.

As Bill Bonner often writes, ‘plus ça change’…

The period referred to was in 1903, just after Edmund Barton resigned the prime ministership, replaced by the protectionist government of Alfred Deakin.

Fear of the big, bad world appears to be in our DNA…

And aren’t the politicians (and mainstream media) milking that fear for all it’s worth?

All of Australia (bar Victoria — oh the irony! — and Tasmania) are in some form of lockdown. Even Alice Springs, with one ‘case’, has shut up shop.

Where does insanity come from? What makes a normally rational society go off the deep end?

In a word: Fear.

Fear is a political expedient. Because it is one of the strongest emotions, it is used to coerce and control.

It is the same emotion that makes us do dumb things as investors. Fear produces neurochemicals in our brains that more or less hijack our neocortex (the rational brain).

I wrote about this in my book, You, Your Brain, and the Stock Market.

‘In her book, I, Mammal, Dr Loretta Breuning writes:

“Humans have a big cortex and a big capacity to learn from experience. But we cannot short circuit our mammalian limbic system. Our cortex gives our limbic system information to make better decisions, but our limbic system still controls the neurochemicals that link mind and body. Our actions ultimately come from our neurochemical selves.”

‘What are these neurochemicals? I’ll classify them into two groups. Let’s call them:

‘1. Fear (or stress) chemicals, and

‘2. Greed (or happy) chemicals.

‘From an investment perspective, these are the chemicals your brain releases (via the limbic system) at extreme highs or lows in individuals’ stocks, or the stock market as a whole. These chemicals override your rational brain and make you do things you later regret.

‘They make you buy at the top and sell at the bottom. Which is really annoying.

‘Knowing what these chemicals are, how they work and why will give your rational brain — your cortex — the best opportunity to override the evolutionary survival impulses fired off by these neurochemicals.’

Let’s have a look at what happens when fear takes over. Fear results in your body releasing adrenaline and cortisol…

‘The adrenaline gives you a surge of energy. This is why you have trouble sitting still or thinking calmly when you’re in this situation. Cortisol is known as your “stress hormone”. It is also produced by the adrenal glands.

‘Cortisol takes a little longer for your brain to release than adrenaline, which is immediate. That’s because it is a multi-step process. The amygdala (the fear centre of your brain) recognises a threat and sends a message to your hypothalamus.

‘It then sends a message to the pituitary gland, which in turns sends a message to the adrenal glands to produce cortisol. I don’t know why it’s a multi-stage process. But I’m not going to argue with a few billion years of evolution. I’m sure the brain has its reasons.

‘In effect, stressful situations, like stock market crashes or high levels of price volatility, result in the production of both adrenaline and cortisol.

‘The production of these chemicals is an evolutionary design to get you out of what has historically been a more pressing threat than a wobbly stock market.

‘They are designed largely as a response to a physical threat.

‘Let’s have a look at the physical effects of an increase in stress hormones. Adrenaline increases the heart rate and engages the muscle and respiratory systems. Cortisol, on the other hand, increases glucose levels to the muscles, and temporarily inhibits other body systems, including the digestive, reproductive and immune systems.

‘This is why those suffering from “chronic stress” — too much production of cortisol — suffer physically because other important systems (for example, the digestive system or immune system) are on hold to fight the perceived threat.’

There is little doubt that the constant fear of the past 18 months, plus the lockdowns that have threatened so many livelihoods, has created chronic stress in society.

I should say more chronic stress. Even before this virus escaped from a lab in Wuhan, chronic stress was on the rise. Excessive debt, insecure employment, two-income households, kids in daycare…

It’s no surprise that chronic illnesses are on the rise. Meanwhile, our ‘healthcare’ system treats the symptoms, not the cause.

Without health, you have nothing. Without health, thinking about wealth and building it for your family is a secondary concern. Health is everything.

So here are a few tips to lower your cortisol and improve your well-being:

• Turn off the TV (especially the news)
• Take vitamin D (or get some sun when it’s shining)
• Finish your showers with a two-minute blast of cold water
• Eat more greens
• Exercise
• Consider fasting one day a week (I’m psyching myself up for this one)

I’m not a doctor, of course. But common sense should tell you whether these things are beneficial for you or not.

At the end of the day, we should be able to live our lives free of fear and coercion and be responsible for our own decisions. Even our early politicians, reared in the classical liberal tradition, would have agreed with that. 

Regards,

Greg Canavan,
Editor, The Rum Rebellion

Silly Season Gets Sillier
By Bill Bonner

Yes, it’s the age of miracles. The bubble epoch. The silly season. And it just gets sillier and sillier.

Christine Lagarde, who holds the top spot at the European Central Bank (ECB), announced that she’s going to continue pumping up the money supply by 17 billion euros per week.

She says it is going to add 1.8% to Europe’s growth over the next two years. That is, somehow the fake money will be magically transformed into real wealth.

How does she know that?

Strange voodoo

Oh, dear reader, is that a serious question? Of course, she has no idea…

And by the way, if her €17 billion per week would add precisely 1.8% to the economy, why not print €18 billion and get 1.9%, we wonder? Or €100 billion?

Apparently, none of the journalists who cover the ECB thought to ask…so we’ll just have to go on wondering.

What strange voodoo is this…that €17 billion per week is the exact number of euros needed to raise GDP by 1.8%?

A good deal

Meanwhile, her co-delusional over in the US, Federal Reserve Chief Jerome Powell, says he’s going to continue the money printing too — at the rate of US$30 billion per week. His aim is to hit 2% inflation — not 2.1%, not 1.9% — which he’s convinced is some sort of sacred number guaranteeing uninterrupted growth and full employment.

What it actually guarantees is higher prices, as we see in the asset markets. The S&P 500 just hit another new all-time high. As did house prices.

The Fed is buying US$40 billion worth of mortgage bonds each month, driving down mortgage rates to the point where you can get a 15-year mortgage at a negative rate.

That is, your mortgage interest will be less than the going rate of consumer price inflation.

A good deal? Apparently.

And it’s likely to be a better deal if tomorrow’s inflation makes today’s mortgage rates even more negative.

Housing market update

Capitalism never strikes out completely. It just swings at whatever wacko spitballs the authorities send its way.

Here’s an update from yesterday’s Stansberry’s Morning Market Update:

‘According to the Census Bureau, sales of newly constructed homes fell 5.9% from the month prior to an annualized rate of 769,000. That was below Wall Street’s estimate of 817,000. It also marked the third decline in the last four months.

‘Existing home sales saw a similar story. The National Association of Realtors reported a 0.9% drop from 5.85 million sold in April to 5.8 million in May. However, that exceeded analysts’ expectation for 5.73 million existing home sales.

‘Yet, according to the Census Bureau, prices are up 23.6% on a year-over-year basis. The figures hit a record-average price of $350,300 in May.’

Let’s see…fewer houses for sale. Higher prices. Inflation!

Swing for the fences

But the wilder the pitches…the wilder the swings…and the more foul balls.

Facebook — a time-waster! — was worth more than US$1 trillion dollars yesterday. Tesla, a company that loses more than US$1,000 on every car it makes, was not far behind, at US$650 billion.

Invisible art…NFTs…joke cryptos…MicroStrategy…SPACs…

An investor gives a SPAC (special-purpose acquisition company) his money. The SPAC looks for something to buy.

The targets are coy. They know the score. There are no ‘walks’ in the SPAC game. If the SPAC makes no purchase within two years, it must give the money back to the investors. And then, the SPACsters lose money.

If they make a purchase, on the other hand, even if it is a bad one, they get 20% of the deal, just for putting it together.

Won’t they swing at almost anything?

Zombie companies

Meanwhile, a serious investor can only laugh. He needs facts…figures…profits!

If he is buying a soap company, for example, he might reasonably enquire as to how many bars of soap the company sold last year…and at what profit margin.

But even asking the questions puts him out of step with the whole team of uncoordinated lunatics who make up today’s financial world.

Profits? Airbnb, Dropbox, Casper, Blue Apron, Lime, Lyft, Peloton, Pinterest, Slack, Snap, Uber, WeWork, Wayfair, Zillow — none of them are profitable.

And here’s the latest from Bloomberg:

‘Since the end of March, almost 100 unprofitable U.S. companies, including GameStop Corp. and AMC Entertainment Holdings Inc., have raised money through secondary offerings, twice as many as coming from profitable firms, according to data compiled by Bloomberg.

‘During the past 12 months, almost 750 money-losing firms have sold shares in the secondary market, exceeding those that make profits by the biggest margin since at least 1982, data compiled by Sundial Capital Research show.’

US$3 billion home run

But at least there are a couple of capitalists who hit a home run, with US$3 billion in fees coming their way from the most reliable payer in the world, the US government.

What’s their secret? Simple. They set up websites and ran ads to offer free money. No kidding.

One ad on Facebook: ‘Literally free money for those who qualify.’

Who qualified? Almost everyone.

Another ad you might have seen on billboards or buses spelled it out: ‘Get up to $50,000 in PPP. Apply now.’

The two small companies partnered with banks to hand out Paycheck Protection Program cash.

Everybody involved made money. The banks made the loans (guaranteed by the Feds). The loan recipients got the money and, generally, didn’t have to pay it back.

But nobody made more than these two companies, Blueacorn and Womply. According to an analysis by The New York Times, they have US$3 billion to split between them.

But wait. Whose money are they divvying up?

Oh, dear reader, don’t ask such silly questions. 

Just enjoy the game.

Regards,

Bill Bonner,
For The Rum Rebellion

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