Dear Reader, Stocks took a breather in the US overnight. Sort of… The Dow and S&P 500 finished lower, while the NASDAQ closed up marginally. However, the Russell 2000, the benchmark small-cap index, slumped 1.77%. Famed bubble watcher Jeremy Grantham captured the end of day headlines following an afternoon interview on CNBC. Grantham said: ‘My confidence is rising quite rapidly that this is, in fact, becoming the fourth, real McCoy, bubble of my investment career. The great bubbles can go on a long time and inflict a lot of pain but at least I think we know now that we’re in one. And the chutzpah involved in having a bubble at a time of massive economic and financial uncertainty is substantial.’ Of course, being in a bubble and being at the end of one are two different things. And as Grantham acknowledges, they can go on for a long time and inflict a lot of damage. Presumably he’s talking about those few rational investors who have chosen to stand aside and wait for the inevitable. According to Marketwatch: ‘Gratham painted a very dire picture of the investment landscape in the U.S., suggesting that rampant trading by out-of-work investors and speculative fervor around bankrupt companies, including car-rental company Hertz Global Holdings Inc. HTZ, +2.56%, reflects a market that may be the most bubblicious he’s seen in his storied career. ‘“It is a rally without precedence,” he told CNBC, noting that the run-up comes amid a period in which U.S. economic health is at a low point, with millions of people out of work and bankruptcies likely to continue to rise due to a slowdown in business activity and closures that have come in the aftermath of lockdowns implemented to curb the spread of the deadly COVID-19 pathogen.’ None of this would be possible without the assistance of the Fed. Its balance sheet has increased from around US$4 trillion at the start of March to US$7.2 trillion now. That is, it has purchased US$3 trillion worth of assets from the market, ranging from government debt to corporate bonds with newly created cash. No one really wants to hold that cash right now. They just want to use it to buy something else. So there’s a game of hot potato going on with all the extra cash in the system. And it’s a game that bids prices up like crazy. Grantham, however, takes the opposing view. When asked what level of exposure investors should have to US equities, his response was: ‘I think a good number now is zero and less than zero might not be a bad idea if you can stand that.’ My guess is that very few can stand that… With US stocks back near record highs (or the NASDAQ at all-time highs), you’d think Fed boss Jerome Powell would be ready and willing to ease back on some of the stimulus measures. Not a chance. As the Financial Review reports today… ‘"We at the Fed need to keep our foot on the gas until we are really sure we are through this, and that's our intention, and I think you may find that there's more for you to do as well," Powell said in testimony via a video link to the US House of Representatives Financial Services Committee. ‘"It would be a concern if Congress were to pull back on the support that it's providing, too quickly," he said.’ Great, now we have an unelected bureaucrat telling elected politicians they need to spend more of other people’s money. So what should you do? Ride the bubble until it pops, or get out? Thankfully, the Aussie market isn’t as crazy as the US. While some stocks have recovered quickly, there are plenty of pockets of good value in the Aussie market. Still, it will follow the US regardless. Right now, stocks are more about liquidity and central bank support than fundamentals like ‘valuations’. While it is impossible to predict when bubbles will pop, in the good old days at least bubbles had their origins in strong fundamentals. This one, however, was borne out of a potential economic disaster. It has resulted in nearly US$3 trillion in fiscal stimulus as well as the more than US$3 trillion in monetary stimulus mentioned earlier. In other words, this stock market boom is largely built on fiscal and monetary stimulus. But now, the fiscal stimulus will soon be wound back, and the monetary stimulus is flattening out. That could well leave the liquidity-induced, rapid stock market rise running out of puff very soon. In relation to the Aussie market, we’re at an interesting juncture. The chart below shows the ASX 200 using weekly data. Weekly, as opposed to daily data, is less ‘noisy’. It is therefore a better way to view things from a ‘big picture’ perspective. Note how the rally has now recovered 50% of the March collapse. Such mid-points are important levels to take note of. If the ASX can break through here (on a weekly closing basis), it suggests this rally can continue. But a decent rejection from this level would be a real concern. Regards, | Greg Canavan, Editor, The Rum Rebellion |
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Lockdown Adventures in the Calchaquí Valley By Bill Bonner Week 14 of quarantine ‘Wow! May retail sales show biggest one-month increase of ALL TIME, up 17.7%. Far bigger than projected. Looks like a BIG DAY FOR THE STOCK MARKET, AND JOBS!’ Donald J Trump SAN MARTIN, ARGENTINA — Wow! It’s amazing what happens when you lose your mind. Everything seems possible. You can even believe that giving out $2 trillion in fake money will make people better off. Are the May retail numbers a sign of a wonderful economy on the road to a rapid recovery? Of course not. They are a sign that our leaders — the president included — are either witless or unscrupulous. Our guess is that they are a bit of both. Can they repeat the trick? Yes…for a while. More fake money In the news today comes word of more fake money on the way — a $1 trillion ‘infrastructure’ boondoggle, courtesy of the same people who gave us the COVID-19 lockdown, the sharpest recession in US history, and the $3 trillion giveaway that boosted consumer spending in May. But if it really was that easy to make people better off, well…you know the rest. There’s a reason why only sh*thole governments pass out fake money to buy votes, pay off cronies, and appease the masses. It doesn’t make people wealthier; it makes them poorer. If it weren’t so, Zimbabwe and Venezuela would be the richest nations in the world. The feds can control the volume of money they print and distribute. But they can’t control its velocity (how fast people get rid of it) or its value (what it is worth when they do). And the more fake cash they give away, the less it will eventually be worth. But we’re going to take a break from connecting dots of the political and financial kind…and give you an update from the Calchaquí Valley.
Invite our souls Life here has developed an agreeable routine, but not boring. We’ve been quarantined here in Argentina for more than 13 weeks. Rumour has it that they are permitting flights within the country next month. Still no definitive word on when we can leave the country, though. You’ll recall, we began our quarantine by looking at the half-full part of the glass. This was an opportunity to disconnect…to think…to learn to speak Spanish better and understand how the ranch functions…to read…and to take up the piano again — after a 50-year hiatus. Or, as American poet Walt Whitman put it, it was to be a time simply to ‘loaf and invite our souls’. We imagined a wonderful idyll; it was like being shipwrecked on a beautiful island…and finding a case of wine washed up on the shore. River crossing How has it worked out so far? We spend the week down in the valley, not quite disconnected. We work remotely, like millions of other Americans, from sunup to sundown. Our Diary and correspondence then pass at the speed of light through the world wide web…arriving in the US with only a fraction of a second of delay. Then, on Friday afternoon, we get into our Toyota 4x4 and head up the road to the ranch. We see why the Toyota pickup has been the favourite of ISIS warlords and Columbian drug cartels. It is very solid and reliable, sturdier than its Ford and Volkswagen (Amarok) competitors, and much cheaper and more manoeuvrable than the armoured personnel carriers now favoured by US police departments. At first, each trip up to the ranch was an adventure. The river — though now crossable — is still an obstacle. Each time we arrive at the bank, we wonder if we’ll get across. But we put the truck into ‘lo’ 4x4…into second gear…and plunge into the water. At first, the truck sinks, with the water splashing up onto the windshield…and rising into the bottom of the doorways. For a moment, it seems as though we will get stuck there. And then, the wheels find the soft bottom, get a grip, and pull us through to the other side. There are only a few miles…and about 2,500 vertical feet…between the farm in the valley and the ranch higher up. But the two are separated by a range of mountains and foothills. The ranch is to the south of the farm. But to get there, we take a dirt road to the north, drive up the valley to Molinos, where we split off to the west, around the mountains, and thence south and up a smaller valley to the ranch. Keep the virus out About two or three miles up the road from us is our neighbour, Ramón. He is a forceful man…a ‘character,’ who has been in the valley all his life. ‘My grandfather came from Barcelona in Spain…He came here with nothing. But within a few years, he had some of the best farmland in the area. ‘He was almost 90 when he died…after a hard life. They worked the canals and the fields with picks and shovels back then. They didn’t have the machines we have.’ Ramón is 69 years old. ‘I’m not like my grandfather or my father. I’m like my mother. They were all diabetic on her side of the family. And I take 10 pills a day. Some for diabetes, some for hypertension. And look at me…I’m fat, too.’ Ramón wrinkles his face, throws his head back, and laughs. ‘I don’t know if you heard, but a group of people from Luracatao (a ranch to the north), who live in Buenos Aires, are planning to come back to the valley for the “fiesta patronale’’.’ (Each ranch has its own patron saint…and each celebrates on its saint’s day, with a large homecoming feast.) ‘I called the mayor and told him to try to keep them out. They’ll bring the virus with them. They live in one of the poor neighborhoods of the city, where the virus is running wild. And if I get it, I’ll be in Heaven (I hope) in a matter of days.’ Ramón laughed heartily again. But he’s right. He’s got four risk factors working against him — age, obesity, diabetes, and hypertension. On our travels A few weeks ago, we were driving along the main road when we came upon an old, broken-down motorhome. There is almost no traffic on the road, so we stopped to ask if we could help. A small, wiry man about 60 years old with a goatee replied that he had everything under control. So we drove on. But now, three weeks later, the bus is still there, chocked with rocks to keep it from rolling down the hill. About 10 miles further on, we come to a police roadblock. We quickly put on our face masks — as required by law — and roll down the windows. The policemen are generally friendly. They salute when we drive up. They know us. Sometimes, they just wave us through. Sometimes, they want to see all our documentation — auto registration…driver’s license…and permiso to move about — though they’ve seen it many times before. When this is completed, we give the cops a fond, ‘Hasta luego!’ and drive through the village of Molinos…which is as dead as Pompei. There is scarcely anyone on the streets. And the few people who move about wear face masks…despite the fact that there are no cases of the virus within 100 miles. Leaving Molinos, we cross the dry Molinos river and arrive at a Y-intersection. There are two valleys that branch off at Molinos. The one to the south leads to our ranch at the far end. Gualfin means ‘the place at the end’. And once you get to the ranch, you can only go further on foot or on horseback. Treacherous route To the northwest of Molinos is another valley…opposite to ours…which leads to the Luracatao, mentioned by Ramón. Luracatao is even stranger and more remote than our property. There is an odd mountain range leading to the upper valley. The mountains are brown and rounded at the top, worn into strange shapes by wind and weather. Presumably, they are much older than the jagged peaks nearby. At the end of the valley is the highest mountain in the area, Cachi, at 20,000 feet. The clouds often seem to bump into Cachi and get stuck there. As a consequence, Luracatao gets twice as much rainfall as we do…and as a consequence of that, it has many more people. At the Y-juncture, the tracks to Gualfin are clear and well-worn. But there are almost no tracks to Luracatao. From Molinos, this is the shortest route. But it is treacherous. A narrow road is carved into the side of a mountain, with a sheer drop of several hundred feet. Our local community ‘nurse’ used to live there, near where the cliffside drive began. A hearty young man, he was on his bicycle when it apparently hit a stone. He fell from the cliff and died. The road is so frightening — and often so washed out — that Elizabeth insists she will never go on it again. Mass exodus And let us explain why there are so many people from Luracatao in the capital city, Buenos Aires. Each of these ranches was once much more heavily populated than they are now. Gualfin, for example, has had two periods of major de-population. The first was after the Spanish conquest, when thousands of people were forcibly removed…killed…or died from the Europeans’ diseases. We see the remains of their lives on the hillsides — with ancient stone terraces, storehouses, shards of pottery, and arrowheads. Then, as recently as 50 years ago, a combination of desperation and opportunity brought a second wave of dispersal. A severe drought in the 1970s put an end to the small tenants’ livelihood. Their crops dried up. Their cattle died. They had to leave. The old timers recall it: ‘I remember as a child, there was much more rain…much more water,’ said our old farm foreman, Jorge, now retired. ‘There were houses and people all up and down the valley. Now, they’re mostly gone. They went to the cities to get work.’ In Buenos Aires, there is a neighbourhood that traces its roots to Gualfin. Another is a community from Luracatao. Occasionally, a cousin comes back just to see where his grandfather came from. Luracatao, blessed with more rain, was cursed by it, too. In the 1990s, there were still hundreds of ‘local’ people there, farming the land as sharecroppers, splitting their revenues with the farm owners. But then, various ‘liberation’ ideologies took hold — like viruses — and proved impossible to cure. The local people came to call themselves originarios, and believed their status gave them special rights. Finally, pressured by the threat of violence, the owner made a deal with the government —the Argentine feds bought the land from him…and gave it to the locals. ‘I used to have tenants,’ the owner explained when we visited a few years ago. ‘Now, I have neighbors.’ Weekends at the ranch On Saturday, your editor repairs gates, rebuilds stone walls, and cuts firewood. The alamos trees that line our driveway and our pastures, planted long ago, are aging. Limbs are falling off. But mostly, they are dying from a lack of water. We are taking down the dead ones and replanting…though so far, with little success. The drip hoses don’t seem to get the water where it needs to go…or the crew is just not very attentive. They regard the trees as little more than a nuisance compared to the more serious cattle and grapes. But now that we are spending so much time here, we’ve been able to focus on preserving the trees; without them, the place will seem windswept and barren. Then, on Sunday (the church is closed), we mount up and explore. This past Sunday, for example, we got up on our old horse, Bayo, who is about as old in horse years as we are in human years. He can still do a comfortable canter, but he walks slowly. We’ll get there A rider has to come to terms with his horse. Bayo and your editor have known each other for more than 10 years. We understand each other. Sometimes, when it is just the two of us on the open range, we talk. ‘Bayo…can’t you speed up a bit?’ we ask. And then, like Mr Ed, he replies. ‘What’s the hurry, Boss? We’ll get there.’ Gauchos used to use spurs. Now, we urge Bayo forward with our heels and the end of the reins, gently slapping on his hindquarters. Again, Bayo… ‘If you hit me with that whip again, I’m going to toss you off and you can walk home.’ ‘Bayo, we’ve got to work as a team.’ ‘Equal partners?’ ‘Sure…’ ‘Then why do you always get to ride? Can we switch?’ ‘Bayo, be reasonable…I’m the rider; you’re the horse.’ ‘How come you get to decide? I thought we were a team?’ El Guanaco We rode out onto the plain to the southwest of the sala (the ranch house). Bayo was a little reluctant. He knew that direction could take a long time…often riding all the way out to the narrow defile where the river runs into the valley next door. The whole ride — out and back — can take about four hours. Bayo was not up for it. Instead, we headed for the little black mountain in the centre of the valley. It is almost solid rock — a reddish conglomeration, once molten, with other boulders embedded in it. As we approached, we heard the strange ouee…ouee of a male guanaco. He was on the rocks ahead of us. A bit unusual, he had white markings on his rear legs. As we approached, he called out again…warning us to stay away. And then, as we kept coming, he edged off…jumping surefooted from rock to rock…and then slipped away off the mountain and onto the great valley floor beneath. Picnic lunch Our goal was to circle the small mountain…and find some ruins we had seen at least 10 years earlier. The going was hard, picking our way through the rocks and prickly sage. But we stuck to the guanaco trails, and had gone about a quarter of the way around when we saw what we were looking for. There was a round shelter, very small…perhaps just a way to get out of the wind…and a corral set on a steep slope. It looked like such an unusual and difficult place for a corral that we wondered what other use it might have had. But we could think of nothing. A little further on, we stopped for a picnic lunch. The sun was shining. The air was cool. We tied the horses to rocks and sat down. Gazing out on the dry pasture below us, with Bayo and Elizabeth’s horse waiting patiently, we had cold empanadas, cold pieces of pork, raisins, toasted maize, and a half bottle of wine. ‘I’m so glad we weren’t cooped up in an apartment for the quarantine,’ Elizabeth remarked, speaking for both of us. Our meal completed, we still had most of the afternoon available. Abandoned houses ‘Look over there…I think that’s where the casas coloradas are,’ Elizabeth suggested. Across the valley, there was a greenish area where an ancient river washed down from the mountains. Nearby, a piece of the mountain had collapsed into the valley, revealing a pinkish dirt. We guessed that the pink houses had been built not far away. We tightened our saddle cinches, mounted up, and headed across the valley to explore. Our hunch was wrong. There were ruins. They were not the ‘pink’ houses. They were older…of stone, not of adobe. They seemed to be a combination of ancient and more recent. There were stone terraces on the hillsides, left by Indians. There were also morterosin a huge rock, typical of the pre-Columbian tribes. But there were traces of 20th century people, too…houses whose walls were still upright…higher than any we’d ever seen from the ancient period. After the Gualfines Indians left, we imagine, the next residents must have stepped into their shoes, using their irrigation canals and terraced fields. They were probably there from the middle of the 17th century to the middle of the 20th. Waiting patiently We tied up the horses and explored on foot. We had seen the casas coloradas many years before but had never stopped for a closer look. This time, we spent an hour or so. But there were a lot of houses…walls…corrals, and other things to see. We wanted to go higher into the old river bed…while the arroya was dry at the bottom, we could see green leaves up higher; there must still be some water up there. Most likely, there would be some traces of life up there, too. But we didn’t have time to find out. We returned to our horses. ‘Can we go home now, Boss?’ asked Bayo. Regards, | Bill Bonner, For The Rum Rebellion |
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