Greg Canavan

[7 min read]

Dear Reader,

Aussie stocks took a beating yesterday.

The reason?

Apparently, rising inflation.

Although the 10-year Aussie government bond yield is still below its February peak. So the bond market isn’t so sure about this explanation.

To be more specific, the market had a panic about the effect of inflationary pressures on commodity producers in particular.

The ASX 200 Resources Index sank nearly 3.3%.

The ASX 200 Energy Index fell 2.8%, as did the ASX Gold Index.

Meanwhile, the broader ASX 200 fell 1.9%, so clearly resources led the falls.

To put things into context, though, resources have had a very strong run of late. Especially the big iron ore miners that dominate the indices.

A solid correction here shouldn’t come as too much of a surprise. It’s the same for companies exposed to other commodities that have had a strong run lately. Things like copper, nickel and lithium…as well as stocks exposed to the green energy revolution.

From the Financial Review:

‘Companies have unveiled rosy updates for the March quarter, bolstering investor expectations for a strong second-half reporting season to mirror the six months to the end of December, which beat analyst expectations.

‘However, anxiety is emerging that the burst in earnings growth, with bumper demand across sectors from retail to commodities and banks, may begin to dissipate.

‘“There are a number of sectors where a strong demand environment has led to strong earnings and the question is whether that is sustainable or whether we are at peak earnings?” Ms Hudson said.’

Whatever reason you want to give, the simple explanation is that the market has had a tremendous run over the past year. Obviously, government and central bank largesse have been the primary drivers of that.

But speculative enthusiasm only has a certain amount of energy. At some point, prices succumb to investor fatigue and look for fundamentals to sustain them. Sentiment is beginning to shift.

And in many cases, prices have run well ahead of earnings. Now the worry is that the current batch of stimulus-driven earnings won’t be sustained.

What makes this all the more interesting is that this is happening with the ASX 200 bumping up against the all-time highs reached before the pandemic hit.

Have a look at the chart below…

On 10 May, the index rallied in an attempt to make a new high. But selling immediately followed. Since then, you’ve seen the selling increase.

In my view, the market will more than likely make new all-time highs this year. But we’re probably due for a gut-wrenching correction before that happens. The market has a way of destroying the speculative fervor and easy gain mentality before moving higher.

It’s the same thing playing out in the crypto space.

From The Australian:

‘Bitcoin plunged by as much as 30 per cent after China signalled a new crackdown on the cryptocurrency and Tesla head Elon Musk sent mixed signals about his car company’s use of the unit.

‘The virtual currency fell to almost $US30,000 — less than half the record value it reached last month — before climbing back over $US33,000. It was still above its level at the start of the year.

‘Trading in cryptocurrencies has been banned in China since 2019 to prevent money laundering, as leaders try to stop people from shifting cash overseas. The country had been home to around 90 per cent of the global trade in the sector.

‘On Wednesday, authorities said cryptocurrencies would not be allowed in transactions and warned investors against speculative trading in them, despite the country powering most of the world’s mining.’

Greed is giving way to fear.

Bitcoin is still in the price discovery phase. So no one really knows where a ‘fundamental’ price level should be. Which is why you’re seeing such wild price swings.

And many punters don’t care about trying to understand what the fundamentals are. That is, what the underlying structure and technology of bitcoin is that gives it its value.

And it’s hardly a surprise that China isn’t a fan. Bitcoin is a massive threat. China’s internal credit growth and yuan money supply is massive. To keep it in the country, they have to have capital controls that prevent money escaping.

Bitcoin provides an anonymous and easy way to do this. No wonder it’s banned. That the market panicked over China reiterating a bank that is already in place tells you how far sentiment has come in a matter of a few months.

While it doesn’t show up on this chart, overnight the price of bitcoin plunged to US$30,000, all the way down to where I’ve inserted the green support line.

That looks like a capitulation low to me. At the very least, bitcoin should bounce from here to clear the oversold condition.

But the chart doesn’t look great in the shorter term. Bitcoin is here to stay. But after a 50% plunge, it will take the market a while to stabilise and move higher again.

In the meantime, gold may be the better bet to protect against fiat currency.

If you’re interested in following developments in the crypto markets and the demise of the monetary system, check out this new service I’m involved in. We discuss all things related to this ‘new money’ system, detailing its growth, and what it means for your future wealth.

Click here for more…

Regards,

Greg Canavan,
Editor, The Rum Rebellion

Are Billionaires ‘Policy Failures’?
By Bill Bonner

‘Anybody who thinks money will make you happy, hasn’t got money.’

 American businessman David Geffen

Poor Jeff Bezos. He’s the richest man in the world. US$188 billion at the last count.

Yet, through no fault of his own, he is cast as a villain. An enemy of the people. A greedy b*st*rd. An avaricious parvenu. A show-off with a carbon footprint as big as Texas.

And now this — he’s a tax dodger, too, according to LoveMoney:

‘On Monday, protestors gathered outside the Washington and New York homes of the richest person in the world and founder of Amazon, Jeff Bezos, over his company’s taxes. Organised by Patriotic Millionaires, a group of millionaires who believe in the rich paying higher taxes, the group targeted Bezos on Tax Day after calculations by the progressive Institute on Taxation and Economic Policy found that Amazon only paid a 9.4% federal income tax rate in 2020, less than half the statutory 21%. The attack on Bezos, which also featured mobile billboards, came despite the retail billionaire coming out in support of President Joe Biden’s proposal to increase corporate tax from 21% to 28%.’

Open season on the rich

Oh my. Which is more pathetic? The millionaires, who think it is somehow ‘patriotic’ to give the feds more capital to squander? Or Bezos himself…trying to deflect the mob by supporting a tax increase?

Bezos has no reason to stoop and crawl. He didn’t write the tax laws. And if there are loopholes in it, they’re meant to be used.

After all, what good would a tax credit for childcare be if no one took advantage of it?

It must not be easy, being a high-profile billionaire. It’s illegal to discriminate against people on the basis of age, sex, race, or religion…

…but it’s open season on these rich SOBs.

Say you ‘hate Asians’ or ‘hate Jews’, and you will be cancelled immediately.

But announce on Twitter that you ‘hate billionaires’, and you will have thousands of followers. Elizabeth Warren and Bernie Sanders say billionaires should be liquidated.

Policy failure

And Dan Riffle, an aide to Rep. Alexandria Ocasio-Cortez, says that ‘every billionaire is a policy failure.’

If so, there are a lot more policy failures than there used to be.

According to the Financial Times, the world minted nearly 700 new ones in the last 12 months (to 6 April), bringing the total to more than 2,700.

In the US, the number of billionaires rose from 614 to 724.

(We suspect the actual numbers are much, much higher than those reported in the Financial Times.)

And the super rich are a lot richer, with a total billionaire wealth that more than doubled in the last year — from US$5 trillion to US$13 trillion.

Readers are invited to note the similarity between this increase — US$8 trillion — and the amount of new money created by central banks during the same period — US$9 trillion.

By the look of things, 88 cents of every dollar of stimmy money went to the billionaires.

Therein, of course, hangs a tale…one that will have to hang on for another 24 hours.

For today, our subject is not the why or the how…but the who.

Miserable millionaires

We sing no praises of Bezos. But we nevertheless hum a little hymn in sympathy.

It’s hard enough to keep up with the neighbours in poor barrios. Imagine what it’s like trying to keep up with Jeff Bezos or Tesla Founder Elon Musk!

Maybe that’s why the suicide rate among the rich is higher than it is for the poor. TIME reported on this nine years ago:

‘A new paper from the San Francisco Federal Reserve shows that, all else being equal, suicide risks are higher in wealthier neighborhoods, a morbid demonstration of the folly of trying to “keep up with the Joneses.”

‘Daniel Wilson, senior economist at the San Francisco Fed, and two co-authors found that for two individuals with the same income but living in two different counties, the one who lives in the county with a higher average income is 4.5% more likely to commit suicide.’

But there is another glaring explanation for why the rich feel this pain more than others: They know something the poor don’t.

That was Freud’s explanation. He said he’d rather have a rich patient than a poor one, because the rich fellow already knows that money won’t solve his problems.

That is why rich people must be the most miserable people in the world. The poor man still has hope. He can buy a lottery ticket and imagine how he might soon be on Easy Street.

But the rich have already won the lottery. They know the streets are rough, no matter which one you’re on.

Bad taste

And when you have a lot of money, it crowds out everything else. It can become the centre of your life…taking up your time…your energy…and your attention.

The rich try to distract themselves by getting involved in charities, art, high-life spending, or low-life politics. Some, like legendary investor Warren Buffett, make a challenge of it…focusing on the rate of return, rather than the amount accumulated.

Others, like Bill Gates, go into world-improvement mode — giving away huge amounts to their pet causes. 

Still others just try to enjoy it…building vast, vulgar mansions…buying gaudy boats…taking exhausting vacations or cluttering up the world with bad taste on a colossal scale.

But when they move into bigger houses, they take their fears, insecurities, and failures — like family heirlooms — with them.

They wander through their charmless piles…searching behind the Palladian columns…looking under the cushions of the 12-foot sofas…exploring the five-stall garage with its collector cars…and why not, a vintage Harley Fat Boy, too…

…then into the library…where they look at the diplomas on the wall…at the framed letter from the White House…at the awards for supporting the Kiwanis…and all the marks of distinction and recognition accumulated over the years, like dents on an old car.

They search high and low…desperately trying to find something, anything…to prove that they are worth their money.

Poor schmuck

Poor Jeff Bezos just can’t catch a break. Here’s CNN Business:

‘The world’s richest man is reportedly buying a boat, though that word feels inappropriately sensible for the monstrosity going to Captain Bezos: a 417-foot superyacht that’s so massive it has its own “support yacht” with a helipad, according to Bloomberg. The estimated cost, not including the boat’s support boat, is $500 million.’ 

But even with a boat the size of Manhattan Island, Bezos will probably still feel like an inadequate schmuck.

Poor fellow.

Regards,

Bill Bonner,
For The Rum Rebellion

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