Dear Reader, Before we start today’s Rum, please bow your head and spare a moment for the bears. We’re slowly going extinct on Wall Street. Stocks here in the US have added on $13 trillion in market capitalisation since the pandemic lows in March. Companies that make no money — like Nickola Inc, an electric truck maker, are all the rage with money managers who can’t afford to miss out on the rally (lest they disappoint their clients). Did you see Apple hit a market cap of $2 trillion last week? It became the first US company to do so (Amazon may be next). Big US tech companies are now like countries unto themselves, with market caps larger than all but the world’s largest GDPs (China and the US). Is this a new age? A new era of distance working, distancing learning, and distance living — all of it enabled by a handful of tech behemoths? Probably not. It’s the next in a series of a bubbles driven by low interest rates, central bank asset buying and government stimulus (especially now due to COVID). Bubbles pop. Always do. It happened in 2000. It happened again in 2007. It’s going to happen again. But how soon? Keep an eye on the 3,500 level in the S&P 500. If and when the blue chip US benchmark reaches that level, it will mean the bull market that began in March 2009 has become the single-best performing bull market since the 10-year run between 1990 and 2000. That market went up 417% before the pop. By the way, I’m not using the ‘textbook’ definition here. Some people would technically argue that the 35% crash in the S&P after COVID began ending the last bull market. And then, that a new one began. But that’s blather. This recent rally is part and parcel of the one that started in 2009. And the backbone of this huge surge in the value of stocks has been the same throughout easy money from central banks and the suppression of bond prices, driving money into ‘risk assets’. The Fed would normally throw a party for itself this time of year in Jackson Hole, Wyoming and tell anyone who would listen how smart and brave it is for saving investors, keeping inflation low, and generally being masters of the universe. But if you’re a regular reader of Rum, you know better. The modern central banker is one part arsonist and two parts thieves. He transfers money from the lower and middle classes to the wealthy by a monetary policy that supports stock prices but saddles the public with huge debts. At least we don’t have to suffer through their braggadocio and hubris this year. What I’m trying to figure out in the next issue of The Bonner-Denning Letter (published on Wednesday in Australia) is what’s next for the Fed and the world. For example, in the meeting notes to the July meeting of the Fed’s Open Market Committee, participants said it might not be necessary (or desirable) for the Fed to practice ‘curve control’. Why does that matter? The big check on runaway government borrow is interest rates. Out of control government spending would usually — if there were any bond vigilantes worth their salt — result in soaring interest rates. It would cost the government more to borrow. It would borrow less and spend less and that capital would be free for some more productive use (like business investment). But when a central bank practices curve control (a practice the Reserve Bank of Australia is already engaged in), it puts a lid on natural interest rates and keeps government borrowing costs low. It does this by buying government bonds. The price goes up (good for speculator) and the yield goes down or at least stays flat. Here in the US, the Fed has discussed curve control as a way of keeping borrowing costs down for the US government. You know the government I’m talking about. The one with $27 trillion in debt. The one running a $3 trillion deficit this year. The one about to run even larger deficits next year (no matter who wins the November Presidential Election). The Fed may not call it curve control. I call it ‘financial repression’, where savers and income investors are sacrificed on the altar of government deficits. But whatever you call it, US deficits are set to be so high in the coming years that the Fed will almost certainly have to intervene all along the yield curve to keep US Treasury bond and note yields from rising. It’s all part of the decline of fiat money against precious metals. That’s the argument I made in last month’s Bonner-Denning Letter. And that’s the main driver for the gold price. It’s also the main reason we’re looking for companies with gold in the ground, not produced, that will get more valuable as the gold price goes higher. In the meantime, as the US dollar becomes less valuable, the bonds that hold civil society together weaken and fail. Last week I asked what was next in authoritarian war on free enterprise and individual liberty. Victory? More violence? Or something in between. Violence is the answer in the streets of US cities like Portland, Oregon, Chicago, Illinois and New York. Protesters exchanged tear gas and threw bags of faeces at each other, according to news reports. It’s been going on for weeks now. Politically engaged modern Americans are no more advanced than their ancient brethren on the African savanna, flinging excrement at one another and howling like monkeys. Strap on your seatbelt for more of that as we head into the election. The big question is whether, in the US, a Biden victory will cause the sudden disappearance of COVID as a serious public health threat (or the sudden appearance of a vaccine that will solve everything). If COVID is being used primarily as a bludgeon to beat up Donald Trump, it will be dropped like a hot potato on 4 November. In Australia, the Andrews government in Victoria continues to use the pandemic as an excuse to curtail individual freedoms, attack small business, and generally enlarge the state (and the ego of politicians). When will THAT end? You tell me. Send your thoughts to cs@portphillippublishing.com.au with the subject line ‘Rum Rebellion’. Regards, Dan Denning, Editor, The Rum Rebellion ..............................Sponsored..............................It’s on. We now have a date… RESET 2021 YET AGAIN a controversial Jim Rickards prediction comes to fruition. Mark it in your diary. The ‘Great Reset of 2021’ is officially happening. 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A Banana Republic without the Bananas By Bill Bonner ‘You better come look at this,’ said Elizabeth this morning. Out in the field, a cow was lying down, bloated. Its legs were sticking out, not folded under, as they normally are. We went out for a closer look, taking a kitchen knife with us (as instructed by our foreman), but hoping we wouldn’t have to use it. As we approached the cow, we saw its legs were rigid and its belly was very swollen. ‘Hinchada,’ say the locals. But it was too late. We felt its neck. It was cold. Stiff. Its eyes rolled back, blank and motionless. ‘We lost another one,’ we told the foreman when he got here. Not normal So far, four of the cows we brought down from the ranch have died. Up at the ranch, they die of hunger. Here, they die from overeating. ‘He shouldn’t have died; it’s not normal,’ the foreman assessed the situation gravely. ‘I’m going to get the vet to look at him. Find out what killed him. I don’t think it was the alfalfa. Not this time of year.’ In the springtime, the alfalfa is rich and fulsome. Cows are not allowed in the fields. It is too strong for them. But in the winter (we’re in the Southern Hemisphere), the plants are dried out and normally, pose little risk. To be safe, we drove the cows into their corrals for the night. We’ll see what happens next… Birdwatching Meanwhile… Little noticed in the financial news was this report from RTTNews: ‘U.S. Consumer Price Growth Exceeds Estimates In July ‘Core consumer prices showed their biggest increase since January of 1991, partly reflecting another jump in prices for motor vehicle insurance, which skyrocketed by 9.3 percent in July after spiking by 5.1 percent in June. ‘Prices for shelter, communication, used cars and trucks, and medical care also increased in July, while prices for recreation declined.’ The biggest price increase in 29 years might be newsworthy. Or it might not. A single swallow does not make a summer. Nor does a single month of exuberant price increases mean that consumer price inflation is on the wing. But today, we’re birdwatching. And the first fowl we look at is that strange bird, Trump’s former chief strategist, Steve Bannon. Mr Bannon was headline news yesterday. The champion of the ‘little guy’ and mortal enemy of the evil Chinese, was arrested aboard a Chinese billionaire’s yacht. Naturally, the liberal media went wild…claiming that he had defrauded thousands of little guys in a GoFundMe scam. Contributors had sent money to build a wall between the US and Mexico. Steve, it appears, thought he had better use for the money. In that regard, he would surely be right. ‘The Wall’ — along with the rest of Bannon’s jackass distractions — was always a goofy idea. For the last 10 years, more people have been leaving the US to enter Mexico than the other way around. Consequences And in Lionel Shriver’s novel, The Mandibles — which we reviewed a couple of years ago — ‘The Wall’ is eventually built…but it is put up by the Mexicans to keep out fleeing Americans. In the future, as imagined by Shriver, the US is not just a failed state…but a miserable one, with out-of-control inflation, millions of desperately poor people, and a lockdown/lock-up government determined to keep a lid on. Today, we look at why Mr Shriver may be right. That is, we are looking at the consequences of the economic lockdown and the reckless money printing that came after. The feds (including state-level functionaries) shut down the parts of society that produce wealth…(for no good reason; the wealth producers — typically aged 20–65 — are more likely to die from accidents than from COVID)… …and then, they blew up the money supply to try to offset the losses. We looked at one of the consequences Friday — Apple rose to a $2 trillion market cap earlier this week. Another obvious consequence — gold is hitting record highs. Huge scam We’ve seen that a determined central bank — the Federal Reserve — really can boost stock prices. As prices rise, it appears to create ‘wealth’. No one objects. Instead, people think it is a sign of success. But it is a huge scam. The Fed is just doing what government always does — take money from one group and give it to another. In this case, the money goes mostly to the richest 10% of the country, and comes — eventually — from the public, when consumer prices rise. The Fed has been inflating asset prices for the last 30 years…becoming more and more reckless about it…and making rich people a lot richer than they ought to be. Were the Fed to stop supporting Wall Street with ultra-cheap credit, stocks and bonds would fall immediately. But driving up consumer prices is entirely different from goosing up asset prices. And what we haven’t seen — yet — is a sustained increase in consumer price inflation. And it has the opposite result. Higher stock prices make people feel rich. Higher consumer prices make them feel poor. Consumer price inflation usually results from fiscal stimulus — overspending and deficits by the government, supported by money printing. Classic ‘helicopter money’ giveaways — such as the $1,200 cheques sent to Americans in April — put money in people’s pockets. But they don’t necessarily spend it. They could choose to save, rather than spend. And cheap imports can lower prices, even as the money supply increases. In effect, Americans can export their inflation to foreign countries. Overseas nations — Argentina is a good example — often have higher inflation than the US. They use the dollar as a backup, a more stable currency, further absorbing the US excess money printing. Two ingredients There are two main ingredients in the consumer price inflation stew — the amount of money…and the rate (the velocity) at which it changes hands. In a recession, consumers earn less and spend less, lowering the velocity of money. The feds can add money at a furious pace…and prices can still go down. For a while. But the more ‘support’ they provide, the more money the feds need to print to keep the jig going. Consumer spending, jobs, payrolls — all come to depend on it. Impossible to stop And then, just as it can be hard to get consumer price inflation rolling, once underway, it can be almost impossible to stop it. Curbing deficits will be impossible — the voters, the insiders, the cronies — everyone will be desperate for dollars. And even if you could stop the money printing, it wouldn’t necessarily stop price increases. When people begin to lose faith in the dollar, the main source of inflation switches from the quantity of money to its velocity. That is, the trillions of dollars — which had been stored in banks, foreign accounts, mattresses, household savings — all come out into the open. People want to get rid of them as fast as possible. Prices — stocks, houses, tools, cars — all take off. Then, the end is in sight. The feds have lost control completely. The disaster runs its familiar course… And the US begins to look a bit more like the catastrophe Steve Bannon helped create…and Lionel Shriver described… Weimar without the cabarets. A banana republic without the bananas. A sh*thole without the sh**… Well, never mind. Regards, Bill Bonner, For The Rum Rebellion ..............................Sponsored..............................With Australia on the cusp of becoming the #1 gold-producing nation in the world, one top gold analyst shares… The 5 Benefactors of the New Gold Boom It is no secret gold is soaring. At the same time, certain Australian gold stocks have jumped 101%, 89% and even 137% since March 2020. But this run up could be the start of something much bigger. 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