Thursday, 29 July 2021 — Wollongong, Australia

By Greg Canavan Editor, The Rum Rebellion

[6 min read]

Dear Reader,

A lot happened overnight.

Fed Chief Powell spoke, the tech giants announced massive profits, London-based Rio Tinto did the same, and the recent Bitcoin [BTC] surge hit US$40k.

The ‘news’ from the Fed wasn’t really news at all. That is, the Fed will taper, maybe, at some point, when the economy is stronger. But not yet.

The market liked that, of course…

And then there were the big corporate results. You can focus on the monopoly-type profits, or you can focus on the share price reaction. I prefer the latter, because it tells you what was already priced in prior to the results release.

So let’s have a look…

Apple’s share price declined 1.2%.

Microsoft was off a slight 0.1%.

Google fell 0.3%.

In other words, these bumper second-quarter profits were largely priced in. That’s despite the fact that revenue and profits ‘beat’ expectations. That’s just a tired, old PR game that firms and Wall Street play. It makes for an exciting headline on CNBC, but ‘the market’ isn’t fooled.

The fact that the near-term good news is priced in doesn’t mean these companies can’t continue to do well. It all depends on future demand for their services. But one thing is for sure, they’re going to come up against very tough comparable sales and earnings numbers from the fourth quarter onwards.

That is, in the second half of 2020, their monopoly-type businesses benefitted hugely from the global lockdowns. Sales and profits soared. What will the year-on-year growth look like as the world slowly returns to normal? Will their share prices justify such high-growth multiples?

That remains to be seen…

In London, Rio Tinto announced a massive profit, thanks to China’s iron ore demand. From The Australian:

‘Rio Tinto will pay out $12.4bn in half-year dividends after the iron price boosted its profits into record territory and the mining giant found itself in a net cash position for the first time in more than a decade.

‘Rio declared a $US5.61 ($7.63) a share interim dividend on Wednesday as the company jumped to a $US12.2bn underlying profit for the first half of the year, up more than 150 per cent from the first half of 2020.

‘The extraordinary result comes on the back of strong commodity prices as Chinese demand for raw materials surged in the half.’

The share price jumped 1.4%, as the massive dividend clearly enticed investors. What will be interesting to see is how the stock trades ex-dividend. It looks very cheap on a PE of around five times forecast FY22 earnings. But resources are cyclical stocks. Low PEs often mean peak earnings. That could well be the case for iron ore companies.

And then there was (is) the continuing resurgence of bitcoin.

Is the worst over?

Quite possibly, although no one knows for sure.

The thing to keep in mind with bitcoin is that it’s not always about the token’s value (the bitcoin price). That, viewed in isolation, is practically useless.

What gives the token its value is the underlying technology. That is, bitcoin is a distributed ledger technology that allows peer-to-peer payments. There is no need for a middleman. Oh, and your capital is ‘self-custodied’, which means no third party holds it on your behalf and can do funky things without your say so.

For example, consider the shares in your super fund. In some situations, your super fund can lend your shares out to short sellers and receive a fee for doing so. As far as I’m aware, that fee doesn’t accrue to you, although in some cases it may be ‘shared’.

This is especially so in the case of zero commission outfits like ‘Robinhood’. You know, the share trading outfits on the side of the ‘little guy’.

Well, like so much that happens in this upside-down world, what it says on the tin is exactly the opposite of the underlying intent.

Robinhood steals from the poor and gives to the rich. We already know that Robinhood sold the order flow of the ‘little guy’ to hedge fund giant Citadel so it could front-run the trades. But there is also a simpler way that Robinhood makes coin…by lending its clients shares to short sellers and taking the fee for themselves.

This was especially lucrative in the recent GameStop share price games. While the WallStreetBets crowd were trying to ramp up the share price to hurt the short sellers, Robinhood was lending those shares to the very hedge funds trying to drive the price lower!

As this article explains…

‘Investors using Robinhood have agreed to let Robinhood lend the shares.

‘With high demand for shares to lent and a low float of shares, Robinhood make premium bucks renting the shares “bought” by the WSB [Wall Street Bets] community to those hedge funds and other agents wanting to short GameStop.

‘Further, Robinhood clients have accepted that Robinhood keeps all the proceeds from lending shares. Many other brokers (mainly the prime brokers) share the proceeds from lending with the client.

‘There’s a saying in business: “When you aren’t paying, you’re the product.” For Robinhood, this is indeed the case.

‘Their clients (and their demand for securities) are the product, and market makers buying the order flow and short-sellers borrowing shares to short-sell are the customers.’

It shouldn’t come as a surprise that Robinhood’s business model has flourished during the latest government spending spree. Easy come, easy go.

It should also not come as a surprise that the crypto market (and the world of distributed ledger technology) has also really flourished during this period.

That’s because there is a growing realisation that the traditional financial system is in its late, degenerate stage. There is no other playbook than to create more debt. And more debt only adds to the debt deflation dynamics that will eventually crush the global economy.

Bitcoin is the basis of a new monetary system. It’s not just a speculative token. It’s the free market’s response to a corrupt, centralised financial system that benefits the 1% and screws the 99%.

Whether you have a stake in this new system or not, it’s important that you’re thinking about it in the right way. As that will give you the resolve to hold on through the turbulence of the price discovery phase.

To help you do that, I encourage you to keep an eye out for our brand-new report, ‘How to Play the New Game: A 5-Part Guide for Exploiting the Crypto Sell-Off’.

It will hit your inbox tomorrow…

Regards,

Greg Canavan,
Editor, The Rum Rebellion

By Bill Bonner Editor, The Rum Rebellion

Normandy, France

We’re exploring the brave new world ahead. In preview, we don’t think you’re going to like it.

You’ll recall that a free economy does what individuals, families, businesses, and investors want it to do. It responds to these billions of different private purposes, aggregating them into the ‘economy’ that we see.

A ‘mission economy’ is a different thing. It does what it is told — by the elite few who control the government. Inevitably, the mission is a disaster.

Big and bold

In his many speeches in the 1930s, Adolf Hitler laid out a ‘big and bold mission’ for Germany.

He was prefiguring economist Mariana Mazzucato (author of Mission Economy) — along with le presidentde la France, Emmanuel Macron…president of the European Central Bank, Christine Lagarde…as well as The Atlantic editor, David Frum…and assorted members of the US Democratic Party — by nearly a century.

Hitler made it clear that the purpose of an economy was to serve the interests, not of the individual, but of ‘the volk’, whose collective desires were channelled by Nazi Party chiefs, the Reich, and most importantly, himself.

The economy thus became the servant of the elite who controlled the German government…and of their ‘mission’.

Of course, Hitler was far from alone.

Earlier in the century, the Soviets had put their economy to work on a collective mission too — to destroy capitalism and build a workers’ paradise on the debris.

That worked about as well…but with an even higher body count.

Yet, comparing anybody with Hitler…or any other government program with his monstrous mission…is considered not just bad taste, but a sin worthy of deplatforming or defenestration.

And as far as we know, neither Ms Mazzucato, Emmanuel Macron, Joe Biden, or Christine Lagarde have begun to grow a moustache.

The only thing they have in common with the Fuhrer is an idea. That is the idea we were wondering about as we sat in a café in Paris on Saturday…

False god

Nature Magazine lauded Ms Mazzucato’s book, Mission Economy, because it ‘put public purpose first’. The problem with the ‘public purpose’ is, however, that it is not of the public’s choosing.

Did the German public see its mission as invading Poland, the Soviet Union, France, Greece, and North Africa? Did the Russians want 70 years of crushing Soviet central planning? Did Americans really want to spend 20 years and US$2.3 trillion getting their butts kicked in Afghanistan?

And isn’t that the big bamboozle…the false god who stabs us in the back, over and over…?

The Bonaparte who rallies his troops on the banks of the Rhine…or the Hitler on the banks of the Oder…for a great campaign of conquest?

Isn’t that the Vladimir, the Che, the Hugo, or the Mao who reorganise society completely (for the benefit of the people, of course)?

Or the Oliver Cromwell, Pope Urban, or Osama bin Laden…who make it their mission to destroy the infidels…and be done with the non-believers?

And isn’t it the darkness settling over the planet once again…its shrouds laid out by the woke and the witless…who are ready to depress, deport, and deplatform anyone who gets in their way?

New contagion

Getting in their way now are the unvaccinated. And here, The New York Times snuffs a few more candles, ‘As Virus Cases Rise, Another Contagion Spreads Among the Vaccinated: Anger’:

‘As coronavirus cases resurge across the country, many inoculated Americans are losing patience with vaccine holdouts who, they say, are neglecting a civic duty or clinging to conspiracy theories and misinformation even as new patients arrive in emergency rooms and the nation renews mask advisories.

‘The country seemed to be exiting the pandemic; barely a month ago, a sense of celebration was palpable. Now many of the vaccinated fear for their unvaccinated children and worry that they are at risk themselves for breakthrough infections. Rising case rates are upending plans for school and workplace reopenings, and threatening another wave of infections that may overwhelm hospitals in many communities.’

Yes, here they are again — good versus evil. The obedient people take their medicine.

And the holdouts…the non-conformists…do not. They are beyond the pale…beyond reason…pariahs…outcasts…to be shunned and dissed.

Tomorrow, what happens to dissenters when the economy gets into mission mode. Stay tuned…

Regards,

Bill Bonner,
For The Rum Rebellion