Category Archives: Investing

How an Illiquid Dollar Ruins the World, by Matthew Piepenburg

Posted on October 20, 2022 | Leave a comment

There is a lot of dollar denominated debt throughout the world, which poses two problems. Higher interest rates are making it more difficult to service debt, and the dollar has been strong against foreign currencies. From Matthew Piepenburg at goldswitzerland.com:

One can’t emphasize enough how dangerous the current macro setting is in the wake of a deliberately strong and illiquid Dollar.

Biden, of course, says not to worry. We say otherwise.

The Illiquid Dollar: We Showed You So

Over the years, we have written and reported a great deal about the US Dollar and the ironic mix (as well as danger) of its over-creation yet simultaneous lack of liquidity.

This illiquid Dollar, as argued since the first repo crisis of late 2019, combined with a now weaponized US Dollar on the backs of intentionally rising rates by a cornered and Volcker-wannabe Fed, all converge to spell short-term power for the Greenback and longer-term misery for just about every other asset class and economy in a now openly fractured global financial system.

As to the stark reality/risk of this illiquid Dollar, rather than just say “we told you so,” it would be better to “re-show-you so” by making specific reference to a prior report published in December of 2021.

“Dollar Illiquidity—The Ironic Yet Ignored Spark of the Next Crisis”

Since penning that report just over 10 months ago, it’s worth revisiting the implications of an illiquid Dollar and the financial crisis of which we warned then and now find ourselves today.

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Getting Rich Is One Thing; The Tricky Part Is Keeping It, by Charles Hugh Smith

Posted on October 19, 2022 | Leave a comment

An appropriate article for the 35th anniversary of one of the largest stock market crashes in history. From Charles Hugh Smith at oftwominds:

When the $400 trillion global credit-asset bubbles all pop, maybe there will only be $100 trillion in wealth sloshing around.

Getting rich in a bubble economy isn’t that hard as long as you were rich enough to buy assets at the start of the bubble.

For example, some friends bought a modest old house (built 1916, under 1,000 square feet) in the East Bay / San Francisco Bay Area for $135,000 in late 1996.

They invested money and sweat equity in improvements (new heating and wiring, etc.) and sold it for $545,000 in 2004.

Now the house is worth over $1 million.

Official inflation since 1997 is $1 then is now $1.80, so if the value of the house had kept up with inflation the current value would be $250,000.

Studies have found housing tends to gain about 2% net of inflation annually, so with this added in, the house “should be” worth about $325,000.

So the house is worth triple what historical (pre-bubble) valuations would suggest.

The stock and bond markets have yielded similar stellar results over the past 25 years, roughly double the handsome historical expected returns.

Other investments have yielded spectacular returns. Many tech stocks have risen ten-fold or more, and those who bought Bitcoin for $650 in August of 2016 when I projected a price target of $17,000 (absurd at the time) could have reaped a nearly 100-fold gain had they held on and sold at the peak around $65,000 in November 2021.

Not everyone who owned or bought assets in the early years of the credit-asset bubble have become wealthy, but most have done well for themselves.

Going forward, the tricky part will be keeping this wealth.

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Imploding credit — the consequences, by Alasdair Macleod

Posted on October 8, 2022 | Leave a comment

Keynesian economics says you can’t have inflation and recession (or depression) simultaneously. The real world says different. Alasdair Macleod explains. From Macleod at goldmoney.com:

There is a growing realisation that the world faces a combination of persistent inflation of prices and a recession at the same time. The factors driving both are visibly intensifying. Those of us versed in the cycle of bank credit are aware that it is the contraction of bank balance sheets which is driving the recession, while it is continuing currency debasement driving inflation.

Neo-Keynesians in the establishment think the current position is contradictory, that current rates of price inflation will decline back to their 2% target in a recession, and interest rates can then be reduced to stimulate economic activity. 

The key to understanding why prices can continue to rise in a recession requires a fuller understanding of the role of credit in an economy and what it represents. Its role is far greater than commonly thought, with considerably more than several quadrillions of dollar equivalents outstanding. All economic activity and wealth are credit. This article sketches out the various types of credit, and how credit equates to our collective wealth.

It also requires us to differentiate between a currency which is anchored to gold specie and one without a specie anchor. The former imposes a discipline on the state of non-intervention, while the latter encourages intervention. It is that intervention which leads to fiat currencies and all credit based upon it finally collapsing.

The importance of credit

That the monetary authorities do not understand credit might seem unbelievable. But evidenced by their actions, it is the only explanation for their mistakes. Clearly, as well as credit they don’t understand the importance of money, having banished gold from its role of anchoring the purchasing power of credit. The vested interest of replacing gold with currency, to obtain for governments the benefit of unfettered debasement, is ignored or forgotten by today’s state-educated economists and commentators. Disregarding what drove the dollar off the Bretton Woods standard in the first place, the establishment in the broadest sense can no longer distinguish between credit and legal money.

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Posted in Banking, Currencies, Debt, Economics, Economy, Financial markets, Governments, Investing, Money

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Devil’s Advocates are Investors’ Best Friends, by Charles Hugh Smith

Posted on October 3, 2022 | Leave a comment

In my 28 years of trading, there was a time or two when a devil’s advocate would have been welcome. The problem is you never realize it until after you’ve lost a lot of money. From Charles Hugh Smith at oftwominds.com:

If those on the opposite side of the trade are viewed as threats rather than friends, it’s time to revise the analysis.

Of the many self-generated dangers investors face, few are more dangerous than confirmation bias, the comfort we experience seeking out views that confirm our own positions and our resistance to studying opposing views.

Confirmation bias is both self-evident and complex. We all understand the psychologically soothing feeling when others heartily agree with us, and the frustration, anxiety and sense of being threatened we experience when our core positions are challenged.

But there’s more to it than just that. Taking a position with conviction empowers us, for by publicly espousing a forecast, prediction or position, we’re implicitly saying, “When events show I’m right, that will show I’m smarter than the average bear.”

If we push our position and conviction to an extreme and shout it out loudly enough, we’ll attract those seeking to confirm their own biases. Confirmation bias thus generates a self-reinforcing feedback loop, as those shouting the loudest attract those who agree with them, rewarding their conviction with “likes.”

We all know the danger of marrying your position, that is, taking not just a financial stake but also an emotional stake that eventually becomes entwined with our identity. What may have started out as a calculated risk morphs into an all-or-nothing reflection of our identity. Any challenge becomes a threat to our selfhood.

Conviction is good, but a hedge and a Plan B are even better. Hedges and Plan Bs arise from a simple question: what if I’m wrong?

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Credit Suisse Shares Hit Record Low, CDS Spike To Record High After CEO Letter Backfires, by Tyler Durden

Posted on October 3, 2022 | Leave a comment

The European banking system is a Jenga tower. Credit Suisse mights as well be the block whose removal sets the whole tower tumbling. From Tyler Durden at zerohedge.com:

Update (0800ET): Traders have woken up this morning to more systemic fragility as Credit Suisse debt and equity is dumped in an unceremonious rejection of the CEO’s letter of reassurance over the weekend.

Who could have seen that coming?

CS stock is down over 5% in pre-market trading (ADRs) to a new record low…

And CS credit risk has spiked to record highs this morning, topping 280bps at one point – basically disallowing the company from any investment banking business. This is higher than the bank’s credit risk traded at the peak of the Lehman crisis…

While the credit default swap levels are still far from distressed and are part of a broad market selloff, they signify deteriorating perceptions of creditworthiness for the scandal-hit bank in the current environment. There is now a roughly 23% chance the bank defaults on its bonds within 5 years.

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Twitter Just Lost Its Last Chance To Remain Relevant, by Tyler Durden

Posted on July 10, 2022 | Leave a comment

The Twitter story has been extensively covered so SLL has ignored it. However, this is a unique and first-rate analysis of Twitter, Big Tech, and the implications of Elon Musk’s abandoned bid for the company. From Tyler Durden at zerohedge.com:

After months of drama, it would appear the fate of social media giant Twitter has been decided, and the result is an inevitable path to the internet graveyard.

Many people will question the notion that Twitter could ever actually bite the dust, but they are probably unfamiliar with the company’s dismal performance as of late.  The reality is, Elon Musk’s potential buyout was their last chance to stay afloat; now that Musk has exited the deal, they face a continued and steady decline into irrelevance like many other Big Tech companies before them.

While it’s possible that Musk’s decision is merely a play for a reduced sale price, it’s probably safe to assume there is not going to be a purchase anytime soon.  This sets a chain of events in motion that bode very poor for Twitter given their track record the past couple of years, but first let’s consider the current situation.

While the initial argument from Twitter execs will be that Musk “waived” his rights to change the original deal and thus he is required to buy regardless, his waiver does not extend to his rights to review Twitter’s claims about their user base.  The deal itself was predicated on Twitter giving honest assessments of the percentage of users that are actually bots (fake accounts).  Twitter initially claimed that bots only made up around 5% of users; it would appear that Musk has discovered this to be false, and this is the position his lawyers have asserted through the SEC.

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How Corporations Are Using Environment Concerns to Scam You, by Dr. Joseph Mercola

Posted on July 2, 2022 | Leave a comment

When corporations come calling with high-minded concerns, run. From Dr. Joseph Mercola at lewrockwell.com:

Pouncing on investors’ interest in environmentally friendly, sustainable investing, the S&P 500 ESG Index was launched in 2019.1 ESG, or environmental, social and governance, funds are supposed to be those focused on companies with strong environmental ethics and responsibility, but further investigation reveals rampant greenwashing has occurred, and many ESG-labeled funds are far from “sustainable.”

The Securities and Exchange Commission (SEC) has been scrutinizing ESG funds for years, as their popularity soared. While funds focused on socially responsible investing were valued at $2.83 billion in 2015, this grew to $17.67 billion by 2019, when Alex Bernhardt, U.S. head of responsible investments at investment consultant Mercer, told The Wall Street Journal, “In every asset class, in every region, ESG product development is the thing right now.”2

Fast-forward to 2022, and the SEC is cracking down on ESG labels, with multiple investigations launched into ESG greenwashing on Wall Street by multiple mega-banks. Globally, $41 trillion are expected to flow into ESG funds in 2022.3

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How Public Pensions Turn Cities into Unlivable Hellholes, by MN Gordon

Posted on July 1, 2022 | Leave a comment

Follow the money, where it does and doesn’t go. From MN Gordon at economicprism.com:

“It’s like going to the ATM in Vegas and then going to the roulette wheel and it comes up red and you go back to the ATM.”

The remark was recently made by Steve Mermell.  The man retired last year as city manager of Pasadena, California.  He knows a thing or two about how borrowing to enhance pension fund returns can result in spectacular losses.

The Wall Street Journal article did not clarify whether red was a winning turn of the roulette wheel or not.  Within the article’s context it didn’t really matter.

The main point was that public pension funds are grossly underfunded.  Consequently, more and more pension funds are borrowing money to play the markets.  The goal is to boost returns to cover their massive funding gaps.

If you recall, public-sector retirement plans offer defined benefits, where retiree pension checks are calculated based on salaries and years of service.  Private employers, on the other hand, generally offer defined-contribution plans (like 401Ks), where payouts are based on market returns.

If you live long enough, and are a recipient of a public pension fund you will get out far more than you put in.  If you work in the private sector, there’s a good chance you will outlive your retirement savings.

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Posted in Collapse, Crime, Government, Investing, Pensions

Nancy Pelosi Recommends Avoiding Pain At The Pump By Becoming A Millionaire Through Insider Trading

Posted on June 22, 2022 | Leave a comment

From The Babylon Bee:

WASHINGTON, D.C.—In a statement given this week, House Speaker Nancy Pelosi said she feels for Americans struggling with prices at the pump and offered a suggestion for how to cope by becoming a millionaire through insider trading.

“If you want to avoid suffering from high gas prices, the solution is simple,” she said. “Just get elected to Congress and spend decades trading stocks based on insider information only Congress is allowed to have! Easy!”

“You’ll even have money left over for ice cream and to bail your spouse out of prison if they get a DUI!”

Republicans condemned Pelosi’s callous statements, contesting that Americans should instead pull themselves up by their bootstraps and work harder, and maybe meet with a few ExxonMobil lobbyists for some extra cash.

“Pelosi’s advice is sound, but we’ve found this approach only works for one out of every 350 million Americans,” said local Democratic strategist Yance Parmesan. “For everyone unable to enrich themselves as a career politician, we recommend you just ask Biden for a gas card or buy an electric car. Simple as that!”

At publishing time, gas prices rose even higher, forcing Pelosi to get a second job delivering pizzas.

https://babylonbee.com/news/nancy-pelosi-recommends-avoiding-pain-at-the-pump-by-becoming-a-millionaire-through-insider-trading

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Doug Casey on Crashing Markets, Commodities, and What Happens Next

Posted on June 22, 2022 | Leave a comment

A quick preview of what happens next: nothing good. From Doug Casey at internationalman.com:

Crashing Markets

International Man: In addition to stocks, it seems that almost every asset class is also crashing.

What’s your take on the markets, and where do you think it’s headed?

Doug Casey: Let’s take them in order of size and importance.

The biggest market is bonds. It’s especially dangerous because it’s the most overpriced. Bonds are a triple threat to your capital. First, because of the inflation risk, which is huge and growing. Second, is the interest rate risk; I expect rates to double, triple, or quadruple from here, going back to or above the levels of the early 80s. The third is the default risk, which applies to everything except US Government debt. AAA corporate debt hardly exists anymore.

Interest rates have skyrocketed in the last year, with mortgage rates going from under 3% to over 6%. 30-year treasury bonds still only yield 3.25%. But with inflation running 10, 12, or 15% and going higher, long-term Treasuries have a lot further to fall. I remain short T-bonds.

Everybody’s paying attention to the stock market because they’re fully invested. The meme stocks, SPACs, and tech stocks have all collapsed. The big ones are down 25%, and many are down 80 or 90%. It’s not over yet. People still feel that they can buy the dips. They’re hurting, but they’ve been paper-trained over a couple of generations to believe the Fed will kiss everything and make it better.

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