Dear Reader,

Something weird happened overnight, dear reader.

US stocks finished down. Not by much. But there was more red than green.

The S&P 500 fell 0.34% while the NASDAQ declined nearly 0.8%.

What is going on?

I’m as confused as you.

It’s not for want of trying on behalf of the ‘authorities’.

Overnight, the European Central Bank (ECB) added to the general insanity of 2020, by announcing more stimulus. Because, you know, they haven’t quite done enough. As the Financial Times reports:

‘The European Central Bank will buy an extra €600bn of bonds in a bid to revive the eurozone’s pandemic-stricken economy, it announced on Thursday, while slashing its forecasts for growth and inflation.

‘ECB president Christine Lagarde said the region was “experiencing an unprecedented contraction”, adding that “severe job and income losses and exceptionally elevated uncertainty” had led to a “significant fall” in both consumer spending and investment.

‘The move to increase the ECB’s pandemic emergency purchase programme (PEPP) was larger than most economists’ expectations, taking it to €1.35tn in total.

‘The ECB also extended the scheme until at least June 2021, leaving it on track to buy a record €1.4tn of assets this year across all its stimulus programmes. That would increase its asset portfolio to more than €4tn, about a third of eurozone gross domestic product.’

It didn’t stop the euro continuing its slingshot rally against the US dollar. It’s soared nearly 5% in the space of a few weeks.

Which is probably why the ECB just decided to monetise a few more trillion in debt. No one wants a strong currency.

And just while I’m on Europe, how do you think 10 years of massive stimulus and near zero interest rates have gone?

Well, the economy is still a basket case.

And judging by the performance of Europe’s banks, it is not going to get better. Have a look at the chart below. The index broke down to multiyear lows in March. No wonder the ECB needs to keep buying. Their banks are practically dead.

This is what happens when you constantly try to prop up companies and industries that have made bad decisions. There is no ‘clean out’. The clowns who presided over the bad decisions remain in positions of authority.

Instead of getting the boot, they are rewarded.

But you know how it works, dear reader.

It works like this in Australia too.

Although we might be a few years behind Europe.

Check out the weekly chart of the ASX 200 Financials Index, which is basically the performance of the Big Four banks…

While our banks ‘only’ bottomed at 2012 levels in March, this is an ugly looking chart. Yes, the banks are enjoying a nice bounce now. And perhaps it will continue.

But from a probability perspective, long-term investors are swimming against the tide here.

Sure, as the economy continues to open back up, you could see the rally extend up to former support around the green line. But the breakdown in March is kind of a big deal.

The tricky thing is this breakdown is related to a government-imposed economic shutdown. There is no real precedent for it.

So I guess you could argue that when our political masters give us back our freedoms, banks will bounce back to previous levels. I don’t think it works like that, but you can always hope…

Speaking of government-imposed shutdowns, is Victorian Premier Dan Andrews the biggest phoney politician in the world right now? Believe me, that’s saying something.

Andrews has presided over the destruction of countless small businesses in Victoria, threatened companies with fines if they attempt to reunite their workforces in the office, and done parents’ heads in by keeping kids at home for much longer than necessary.

All for our own good, of course.

We can’t have weddings, can’t go to funerals and say our last goodbyes to loved ones...

We can’t attend church, can’t get kids out and moving at junior sports…

But we CAN congregate in the tens of thousands for a protest march.

This is the bloke who backs China over his own Federal government.

He is without principle.

What is it with the left these days?

They have gone rabid.

My anger (and the anger of millions of other Aussies) has nothing to do with the cause behind the march, which is a noble one.

But how, as a leader, can you put countless livelihoods under threat, and families under stress and financial strain, because of the risk of infection yet allow a gathering of thousands?

If I’m a small business owner, I would be livid. In fact, if you’re someone with any sense of perspective and fairness, you’re going to be outraged.

The real tragedy behind the death of George Floyd is that many on the extreme left are using it as a screen to promote violence and civil unrest. They just want the system burned down. Their agenda has nothing to do with ‘black lives matter’ and everything to do with division and playing the race card. And the far-left democrats are wilfully encouraging it.

Meanwhile, being the amoral beast that it is, the stock market doesn’t care…

Regards,

Greg Canavan, Editor, The Rum Rebellion

Vern Gowdie: 26-year veteran wealth planner ‘I’ve not recommended a single equity on the ASX, or any other stock index, since I started publishing my newsletter five years ago. NOT ONE. Until now Find out the name and ticker symbol right here.

Your Choice: A Rip-Off or a Fraud
By Bill Bonner

SAN MARTIN, ARGENTINA — ‘One country, two systems’, says colleague Byron King.

The phrase was used in the 1980s by Deng Xiaoping to describe China’s special relationship with Hong Kong and Macau.

Now, says Byron, it points to a dangerous fault line in the US.

There are two systems. One is a fraud…and the other is a rip-off. More below…

Choose your side

Here in Argentina, we live under one of the strictest lockdowns in the world.

Perhaps the Argentines really do believe in the Lockdown Theory…in which you delay deaths of a few by stopping normal life for the many.

Or, maybe the new socialist/fantasist government is eager to destroy the economy completely so it can rebuild it in another form.

We don’t know. But the economic rut on the pampas is getting deeper. And, like the US, the Argentine government has only two options: honesty or larceny.

And like the US, it will choose the second one.

This, of course, will just make the hole even deeper…perhaps catastrophically deeper (à la Venezuela)…but we will see.

Meanwhile, yesterday, friends from nearby Cafayate got permission from the chief of police to come visit. We’ve been here now for 11 weeks, with the airports closed and no way to get out. Suddenly, a door was open…

‘We chartered a plane to take us down to Buenos Aires’, one of our American guests explained. ‘And from there, we’ll get a plane to Miami.’

‘The flight to Buenos Aires was almost fully booked… but some seats are opening up. Lots of people are dropping out. They’re watching the news from the U.S. on TV and thinking they would be better off here.’

‘I don’t want to go back, either’, said a member of the group. ‘I just get so mad when I read the news. It’s just one idiotic thing after another. It’s as if you have to pick sides. And both sides are awful.’

Conservatives versus liberals…New York Times versus Fox News…red states versus blue states…racists versus fascists. Choose your side. Gun up!

Americans are encouraged to square off against each other…while the real enemy steadily advances, unrecognized.

Fraud versus rip-off

We have two financial systems in the US.

Byron King explains that ‘one economic system does work for many people. But the other system has failed people whose numbers now total into the tens of millions. It’s a recipe for disaster.’

One system is a fraud.

In it, the Dow rose 500 points yesterday…and the NASDAQ 100 hit a new high. Altogether, stocks are up 40% from their COVID-19 Crash bottom…and the stock market, compared to GDP, is now at an all-time high.

The other system — in which most people live and work — is a rip-off.

It’s the Main Street economy, which has been deprived of real investment, good jobs, and genuine wealth-building capitalism by order of the feds.

The Atlanta Fed says the US economy has been cut in half. Barry Ritholtz:

‘The real time GDP running estimate of U.S. economic activity is half of what it was 3 months ago. As of June 1, the Atlanta Fed is nowcasting that economic activity in the United States, as measured in GDP, is minus 52.8%.’

NPR adds:

‘Americans are skipping payments on mortgages, auto loans and other bills. Normally, that could mean massive foreclosures, evictions, cars repossessions and people's credit getting destroyed.

‘But much of that has been put on pause. Help from Congress and leniency from lenders have kept impending financial disaster at bay for millions of people. But that may not last for long.’

If you’ll recall from yesterday, these ‘two systems’ can be measured by looking at the results.

In one system, the 20% at the bottom have lost 25% of their wealth in the last 10 years. In the other, according to the Federal Reserve’s figures, the top 10% are up about 75%.

Dollar noose

Here at the Diary, your editor is happy to be on the upper decks. But he knows the silk pillows won’t do him much good if the whole ship goes down.

And what’s this? A fire down below?

The people at the top may be perfectly comfortable with the fraud system; it makes them wealthier. But there is already trouble below deck.

And as the real economy sinks, a lot of people are going to get angry, even if they don’t understand how they’re getting ripped off.

Then, what can the feds do? They’ll try to placate the bottom 90% with the same fake money they used to enrich the top 10%.

That will mean switching a lot of the ‘stimulus’ from Fed-based monetary policy — which goes to Wall Street and the 10%…to fiscal deficits, which end up on Main Street and in the hands of the 90%.

And then, instead of inflating stock, bond, and real estate prices, the fake money will give a lift to consumer prices, too.

However, Dear Readers are reminded that inevitable does not mean immediate. Don’t hold your breath, in other words.

The US dollar is still the world’s go-to money in case of financial instability. And our guess is that a lot of instability is coming.

Other countries have embarked on financial suicide missions similar to the US, printing money to cover their deficits.

Many of them — Argentina, in the lead — will blow up their currencies before the US. And then, their citizens will seek safety — in the dollar, of course.

Steaming business

Here in Argentina, the printing presses are already running hot…

…and the black market currency traders are already doing a steaming business, taking in pesos by the thousands…and trading them for dollars.

This demand for America’s fake money (in preference to the gauchos’ fake money) is likely to keep the value of the dollar high…despite the feds’ money printing.

But at some point — your editor is not fool enough to say when — those fake dollars will be revealed to be every bit as worthless as that $20 counterfeit bill that George Floyd tried to use to buy a pack of cigarettes.

And then, the two systems will blow up, too.

Stay tuned…stay alert…

Regards,

Bill Bonner, For The Rum Rebellion