The Real Story Behind the Crack Up

Friday, 5 June 2020
Melbourne, Australia
By James Woodburn

 

American cities are burning, there’s a lethal pandemic, and we’re in a new Great depression. Of course, the stock market is up. Why do we persist in calling it a “market?” S&P 500 is really the S&P 6, stocks are traded by robots and financed by $5 trillion of printed money at 0%.

People ask me when things will “get back to normal”. The answer is never, (or at least not for a very long time). Germany was not “normal” from 1914-1954. Social disorder is like a virus; it goes away eventually but not necessarily soon.

I’m trying to reconcile the New York lockdown with the New York curfew. I guess it means you can’t go outside all day, but when night comes you still can’t go outside.

The best of Jim Rickards’ tweets this week

We’re having lots of conversations this week because there are lots of things going on in the world…all at the same time.

Sometimes it’s hard to know what to focus on. And easy to get taken down an alley. But that’s why we’re here. One critical story for Australia right now is China’s move on Hong Kong. Jim Rickards and Greg Canavan both had thoughts on this.

But first a quick comment on where most people’s eyeballs are focussed: the streets of the US.

The overwhelming narrative in the mainstream press is basically that the US (or at least the US police forces) are systemically racist. And of course, it is taking its lead by the biggest far right white supremacist of all: Donald Trump.

While racism is an issue in the US (name me a place where prejudice isn’t), especially when a white policeman kills a black man, don’t be fooled into thinking it’s the real story. There’s a deeper issue simmering underneath the surface. And that is the plain fact that the monetary system under which we all live and operate is cracking up.

It’s a system that for many decades now has favoured a few privileged people (the deep state, crony capitalists, Wall St and central banks) at the expense of everyone else, especially poorer minorities, who rely on fixed incomes and paycheques.

When the value of their hard-earned money is eroded by money printing to bailout zombie institutions…to stimulate…and keep interest rates at 0%…what do you expect will happen?

Dan Denning made this point in Monday’s Rum Rebellion

It’s not true capitalism, he said, where voluntary and mutually beneficially trade equals a win-win, but a quasi-feudal system where control of money leads to massive inequality.

 ‘…you don’t get major unrest in civil society unless pressure has been building for a long time. That pressure can be political, when people feel like there are two sets of laws (one for the elites, one for the rest of us). But it’s also economic.

And here’s the part that most people will miss entirely. The monetary system is to blame. A monetary system which encourages debt, allows for huge government deficits, and rewards speculation and short-term profit maximisation is the chief culprit of the social mess we’re in. Not only does it alter incentives in a negative way, it distorts values. And not just monetary values.

We have a feudal economic system that’s disguised as free market capitalism. It’s anything but win-win voluntary and mutually beneficial trade (real capitalism). It’s a system where control of the money (through central banking and politics) leads to wealth inequality. People who own financial assets benefit. Most people on a wage or fixed income are left behind to deal with inflation and declining real wages.

What you see in the streets of the US is a profound frustration with that system. It hits hardest in urban areas which are predominantly occupied by minorities. These are the most left behind by the current system. They have the have the least to lose because, economically, they don’t have much to begin with.

When you don’t have much left to lose, and when you’ve been locked down and robbed of your ability to improve your life economically (or told your job isn’t essential, even if it’s how you feed your family), you’re going to be upset. And then when you see that a militarised police force can deal out death and brutality with impunity?

Well, that’s where we are right now, socially.

Meanwhile, the markets are on another planet. They just keep on going up, devoid of any link to economic and political reality. I’ll get to that in a second. First, let’s swing back to Hong Kong.

When Hong Kong moved back to Chinese rule in 1997 it was promised autonomy until 2047. It’s taken 23 years to renege on that promise. I’m surprised it took that long.

In a recent Strategic Intelligence weekly, Jim Rickards recounted the difference between the first time he visited…and the last:

When I first visited Hong Kong in 1981, I ranked it as the second most energetic city in the world after New York. Hong Kong did not have the museums of Paris, the ruins of Rome, or the imperial legacy of London, but it did have pure energy and buzz that was hard to match outside of the Big Apple. I returned many times in the 1980s, 1990s, and early 2000s, developed a lot of good friendships and had a great time there whether I was doing deals, giving speeches, or just enjoying the views. Yet I did notice that every time I returned the energy level was a little less than the time before and the people were a bit more sullen.

Finally, I visited Hong Kong in May 2018 to give a speech at the Asia Society to a senior group of government officials and local elites mostly in the property business. At some point, one of the high-profile attendees took me aside and whispered, “Be careful what you say.” It was at that point I realised that the old Hong Kong was gone and the new Hong Kong of communist surveillance and thought control was firmly in place.

And so China’s new law on Hong Kong under the guise of ‘national security legislation’ brings the final blow. There’s no going back now. Maybe there never was. But it’s official now. And it’s already sending capital fleeing.

Greg highlighted this in Tuesday’s Crisis & Opportunity update. Money doesn’t like socialism. And it’s trying to get the hell out of there. According to local Hong Kong money exchange store owners, demand for US dollars surged.

Still, the markets don’t seem to care. Aussie dollar surged against the USD and, like I said, stocks just keep on going up.

A number of our editors have actually been taking advantage of that this week. Sam Volkering has been conducting a cleanout of his Revolutionary Tech Investor portfolio.

Among the positions he recommended selling in the last two weeks included 417% gains on AMD, 256% on Canopy Growth, 175% on Phoslock, 316% on Uniti Group, and 170% on Open Orphan.

That last one was banked in the last two months.

Then over at Hard Money Trader, Shae advised readers to take half profits on two of her trades for 113% and 195% gains.

And Ryan Dinse did the same for his Exponential Stock Investor subscribers — he advised taking half profits on his quantum computing play. The share price is surging higher, up around 282% in five months.

It just shows you that no matter what is happening in the world, there’s money to be made.

Now, talking of profit-taking, you’ll remember a couple weeks ago I caught up with Greg and Murray Dawes to ask the question: How close are we to a turning point in the market?

Using their charting software, Murray and Greg walked us through the key levels they were watching for. Well, the markets have only gone up since then, so I asked Greg and Murray to get on a video call to give you an update.

Click below to watch.

 

Have a great weekend.

Cheers,
Woody