Dan Denning

Dear Reader,

Last week I left off with the question of asking when and how the Australian people would rebel against the draconian lockdown rule of various state premiers, especially Beijing’s man in Melbourne, Daniel Andrews. The answer this week is clear. At first reluctantly. And then, hopefully, enthusiastically.

I’ll come back to that in a moment. But first to markets. And the big question: is this the BIG ONE for the momentum market? Has the market lost its mojo? Are stocks about to go from overvalued to undervalued in a hurry again?

Yes, says Barron’s magazine. It’s a bubble. But no, it isn’t over just yet. Hmm.

The magazine says that the forces that have inflated this bubble could keep it going for longer than you expect. Working from home for good, remote learning, the flight from the cities to the country — all these forces support companies like Apple, Amazon, Microsoft and Zoom.

And let’s not forget liquidity and speculation! In the blow-off stages of a mania, all the money (smart, dumb and speculative) is chasing higher highs. Evidence? The volume of trading in single stock options recently exceeded the volume in regular shares for the first time ever, according to Goldman Sachs via the Wall Street Journal.

Don’t get me wrong. There’s nothing wrong with options — if you know what you’re doing with them. But options were originally designed as a way to hedge risk. They were not designed to be the primary way punters got rich off rising tech stocks. But that seems to be where we’re at in this particular cycle.

There’s no hard and fast rule that says it has to be over. There’s no limit on human stupidity. Punters gonna punt. And they’ll keep doing it until a ‘correction’ forces a margin call and wipes them out or renders their options positions expire worthless.

The underlying earnings of these businesses don’t support the valuations. No changes in how people trade those earnings are going to change that. In the meantime, buckle up and enjoy the ride. But please be aware how quickly it can all vanish.

The mainstream press continues to conflate volatility with risk. They’re similar but not entirely the same. Markets ARE risky. They go up. They go down. Moods swing. The social mood changes. It can happen fast.

Here in the US, some strategists think the election will actually make a difference. Morons! All of them. Check the numbers out.

Annual Federal spending has topped $6 trillion for the first time in US history. And in concert, the annual deficit has topped $3 trillion, also a first. The US’ deficit-to-GDP ratio is now 16% and rising.

Whether Joe Biden can beat Donald Trump or not, whoever is in the White House a year from now will be in charge of a political establishment that’s embraced unlimited government and unlimited money. From a political point of view, this is almost impossible to reverse. And for a country with nearly $27 trillion in debt, the only way out is a de facto default: pay it off with inflation.

Inflation may be, as Milton Friedman once said, always and everywhere a monetary phenomenon. But it’s the spark that can set lots of other things on fire. Like civil society. If you think the US is a cauldron of anger and resentment now, wait until food and fuel prices start rising faster. Then you’ll see the kind of monetary regime change you only ever read about in the history books.

Australia is not just a casual observer to all this. It has some skin in the game. If Donald Trump really wants to decouple the US from China, will that force Australia to choose sides? The US is Australia’s military partner and security guarantor. But China is where Australia’s bread is buttered. Can it afford to make any other choice than to go along with Beijing’s New World Order?

Which brings me back to Victoria’s Premier Daniel Andrews. Take a good look around at the Australia you live in. Curfews imposed for no medical reason. Restrictions on work, travel, and freedom of assembly. Cops who talk derisively about citizens exercising their fundamental rights. What do you make of it?

Here’s what I think: this is your test drive of the New World Order in which all private relationships are restricted and mediated by the state. Schools, businesses, churches, even illicit affairs between consenting adults — none of these will ever be the same if Andrews gets his way about the ‘COVID normal’ that will emerge after. Big Brother is licking his lips.

Like a clever debate society boy, Andrews says it’s not a question of human rights but a question of human life, as if that turn of phrase eliminates the psychological, spiritual, physical and financial damage he’s inflicted on millions of Victorians through his arrogance. The media continues to televise and report Andrews’ daily recitation of the number of new cases in Victoria. And we’re told we must accept that unless that number meets the government’s expectations, the economy can’t reopen.

Here’s a memo to you sociopaths in charge: keep it up at this pace and there won’t be an economy to reopen. Small businesses will throw in the towel for good. Commercial renters will walk away from leases. Renters will call for rent to be cancelled. People will stop paying mortgages.

Those are the kinds of unintended consequences you get when you start messing with a complex adaptive system. Free enterprise only works if individuals are free to make their own choices, based on their own preferences and values. Government politicians who’ve never met a payroll in their life or tried to provide a good or a service at a profit are in no position to tell the private sector what it takes to ‘open up’.

They have no idea. They think you get what you want in life through force because that’s how they’ve lived their lives. The rest of us make our way through life by trading our time for money, providing a skill or service other people value. It’s all voluntary. Not compulsory.

There have been 19,835 total cases in Victoria, according to the government’s figures. 17,893 of those cases have recovered. There are 1,157 ‘active’ cases. There have been 723 reported fatalities due to COVID, with 126 people currently in the hospital and nine people in ICU. That’s right. NINE people in ICU. NINE.

People did ‘the right thing’ and complied with restrictions in the lockdown so the health system wouldn’t be overwhelmed. All the evidence indicates it hasn’t been. And all the evidence suggests the vast majority of COVID cases recover from it. These are facts.

Yet instead of trusting the ‘science’, the government ignores these numbers and calls to ‘eradicate’ the virus, even if it means crushing the economy, public morale, and civil liberties in the process. Victoria is now top of the table in the world for incompetent political and medical leadership, and its people are paying the price.

Sooner or later, the few competent journalists in the mainstream media will start asking questions. Honest cops who didn’t sign up to beat up on their neighbours or arrest them for Facebook posts may start calling in sick. And two-faced rat politicians will smell blood in the water and turn on Andrews. It can’t happen soon enough.

Regards,

Dan Denning,
Editor, The Rum Rebellion

Another Big Step down
By Bill Bonner

A K-shaped recovery.

The ‘rich’ on the upstroke…the ‘poor’ headed down.

The rich working remotely…the poor barely working at all.

The ‘rich’ in their suburbs, vacation homes, and Zoom towns…the poor struggling to pay their rent or mortgage…

The ‘rich’ enjoying their stock market gains…the poor waiting for their next cheque from the government.

The rich, fat, and sassy, ready to send in their ballots…the poor picking up rocks, ready for a revolution.

Boneheaded decisions

On Friday we looked at what has happened so far in the 21^st century. Boom…bust…war…debt…disappointment.

But that took us only up to 2020.

This year, the disappointment intensified…with two of the most boneheaded decisions in government history crowded into the space of just 30 days.

First, the feds shut down the source of real wealth for 90% of the population — the Main Street economy. Then, they tried to use their quack medicine — fake money — to revive it.

But this time, they didn’t merely give the magic elixir to Wall Street, hoping some of it would dribble off its chin into the real economy.

This time, they gave money directly to Main Street, too.

The trouble is, while counterfeit money (with no real wealth behind it) works for Wall Street, it doesn’t work for Main Street. The latest unemployment numbers — even the official ones — show new jobs lagging. Here’s The New York Times:

‘Despite some signs of economic revival, the outlook for American workers remains treacherous, with layoffs continuing to claim hundreds of thousands of jobs a week.

‘The weekly figures on unemployment claims from the Labor Department on Thursday showed no relief, reflecting what Michael Gapen, chief U.S. economist at ‘Barclays, said was “a transition to a slower pace of recovery, and one that will be more uneven.”

‘The department reported that more than 857,000 workers filed new claims for state unemployment insurance last week, before seasonal adjustments, a slight increase from the previous week. On a seasonally adjusted basis, the total was 884,000, unchanged from the revised figure for the previous week.’

Downsizing

You may say that is ‘only because of the virus’. But it seems to be more than that. Attitudes have changed. Habits too.

From our office in Baltimore comes this update:

‘We’re downsizing. We now only need half as much space. We found that we could work perfectly well remotely. Now, the office is open, but only a few people are coming here to work. The rest work from home. All we really need are a few offices and a few meeting rooms.’

This is great news. It means we can save on office space, cutting our rental costs in half.

But what about the landlords? What about property prices?

Manipulate and control

Meanwhile, from New York comes news that restaurants will be allowed to open for indoor dining next week — but only at one quarter capacity.

Let’s see…how does that work? How many restaurants can survive high New York rents with only a quarter of the customers?

Like Sweden, now that the virus has cut through the empire state, the number of new COVID-related deaths has dropped to the floor. In New York restaurants today, you are more likely to die by choking on a piece of meat than from catching the coronavirus.

But the politicos/world improvers have found a new way to manipulate and control the masses. We doubt they’ll give it up easily.

In airports, travellers still submit to screening and pat downs — 19 years to the day after the 9/11 attack. Now, to enter a restaurant in Manhattan, they will have their temperature taken. Will restaurant owners still be checking diners’ temperatures in 2039?

And don’t expect a ‘deus ex vaccine’ to suddenly return things to normal. No vaccine for a coronavirus has ever been proven effective. And even if one is eventually developed, it won’t be widely employed any time soon.

US’ descent

Meanwhile, people are getting used to a new economy — one where they depend more heavily than ever before on the government…not just to tell them what to do, but to give them money.

That is what marks a big step down in US’ descent. The Federal Reserve can support Wall Street; the ‘benefit’ is immediate and unmistakable. The harm, on the other hand, is long-term and almost invisible.

As we’ve seen over and over, the fake money raises asset prices and makes investors happy. It also shifts their attention from long-term, productive investment — new factories, new products, new employees — to short-term money hustles.

Share buybacks, mergers and acquisitions, and borrowing money to fund bonuses and dividends — all provide quick gains for investors, but no real benefit to the economy.

As a result, GDP growth rates have been falling for the last 50 years. In the first three years of the Trump administration, they averaged only half what they had been in the 1970s and 1980s. This year, they are negative.

Same treatment

And now, the feds are giving the same scammy treatment to Main Street that they’ve been giving to Wall Street for decades.

But what happens when you give money to the 90% of people who don’t own stocks? What do you get? Do you make them all richer? Richer than whom?

Ah…there’s the flimflam. Counterfeit money never adds to a nation’s wealth; it merely moves it around.

The investor is ‘richer’ when he can cash in his stocks and buy more goods and services in the Main Street economy. He’s ‘richer’ than the 90% without financial assets.

But who will the 90% be richer than? From whom will they buy real goods and services? Only themselves.

What you get when you try to ‘stimulate’ the Main Street economy is more people with more money bidding against each other.

Again, this is no problem on Wall Street. Prices go up; everybody’s happy.

But when it happens on Main Street, it’s a whole ‘nuther thing.

More to come…

Regards,

Bill Bonner,
For The Rum Rebellion