Wednesday, 17 November 2021 — Gold Coast, Australia

By Vern Gowdie Editor, The Rum Rebellion

[7 min read]

Dear Reader,

The rhythm of life is as old as time itself.

‘About 900 years ago a text called The Yoga Spandakarika was written by an Indian philosopher and scholar named Vasagupta.

‘In Sanskrit the word “spanda” can be translated as vibration or tremor and refers to the pulsation of life that exists within each of us.

‘The Yoga Spandakarika teaches that everything in our world IS vibration, pulsing at different levels of frequency.

‘Our bodies are a perfect repository for this never-ending throb of life force. Every time it beats, your heart contracts, causing a wave of pressure that pushes fresh blood into your arteries. Between these contractions it briefly expands to allow more blood to come in.

‘As long as you’re alive, this pattern never changes.’

‘Contraction and Expansion: The Rhythm of Life’, Julie Smerdon

Down through the ages, the competing forces of…

• too much, too little
• too high, too low
• too fast, too slow
• too restrictive, too lax

Have been working towards achieving…

Balance. Equilibrium. Equality. Happy medium.

We live in a world constantly working towards maintaining balance…the never-ending throb of life.

The pendulum never stops swinging.

Life — and its many moving parts — is a continual process of yin and yang.

When something gets out of balance there’s always a corrective process.

There are times when an imbalance is corrected immediately, and other times it can take years, even decades, for the pendulum to move in the opposite direction.

We know, accept, and recognise the need for the principle of balance in our lives.

Yet, when it comes to investment markets — be it shares, property, bonds, or cryptos — we somehow want an exclusion zone to be applied on this principle.

Asset prices should never contract. Expansion should be followed by some more expansion and then even further expansion. Never pausing to contract.

Of course, that does not happen.

Even in our living memory, the market’s expansionary phases do contract…dotcom boom followed by the tech wreck and US housing bubble followed by the GFC.

What comes after the parabolic rise of the everything bubble? Continued expansion?

The expansion of the everything bubble suffered a momentary contraction in March 2020. But (courtesy of the Fed) Wall Street recovered and expanded to even higher highs.

Many see no end to this expansionary trend…it’ll continue pushing on without ever pausing to catch its breath.

And I can understand why.

A 25-year-old in 2009 would not have been overly affected by the contracting forces of the GFC.

That same person is now 37. All they’ve ever seen in their adult life is rising markets...shares, property, and cryptos.

You can appreciate why a whole generation of investors believe the Fed is omnipotent. In their investing lifetime, the Fed (appears to have) rendered market cycles redundant. Any dip in market trajectory is quickly countered by a more aggressive stimulus response. The Fed is the financial industry’s helicopter parent.

The equalising forces of risk-on and risk-off have been rendered obsolete.

A relic of an era that no longer exists.

It’s now…game ON.

As reported by Axios in June 2021:

‘You can analyze Robinhood as a mobile gaming company. It makes an app that you can download to your phone, and then you can play a game on the app. As with many mobile games, there are in-app purchases, and you can end up spending a lot of money on the Robinhood game. The game is of course a stock-trading game. The purchases are stocks.’

If you’re thinking ‘those silly kids are gambling not investing, I’m OK Jack.’ Sorry to disappoint you, but you’re sadly mistaken.

What happens on Robinhood, ends up in your ‘hood’.

Those fast-fingered ‘buy and sell’ orders influence market pricing…look at Tesla’s share price.

The gaming of popular shares triggers signals with passive investing algorithmic trading programmes…pushing indices higher.

That ‘steady-as-she-goes’ balanced super fund the majority are invested in — with a 65%-plus exposure to Australian and international shares — is influenced by the actions of novice punters half a world away.

Everything in markets is connected

A flurry of activity by an overly excited OR panicky few has pushed the market’s valuation pendulum from one extreme to the other for more than a century.

Market pricing ALWAYS happens at the margin.

On any given day, less than 0.5% of shares are traded. That wafer-thin trading activity sets the price for the remaining ‘buy and hold’ 99.5%.

Double the trading volume — due to a wave of rampant speculation or panicked selling — and you get violent price swings.

This following chart — dating back to 1900 — shows how the average of four long-term valuation indicators pendulum has swung above and below the MEAN.

Periods of excess exuberance have all been countered by an equal and opposite force of fearful selling.

Balance has always been restored.

After 1990, you can see the Fed’s fingers on the market’s scales of balance.

The excesses — dotcom boom, US housing bubble, and everything bubble — have been more excessive. And the corrective forces, less corrective.

Pressure is building.

The energy required to maintain the momentum behind this force of extreme optimism is considerable.

The higher the average climbs, the greater the equal and opposite force of pricing fatigue becomes.

Unless, of course, you think balance will never, ever be restored again…leaving the valuation pendulum in a permanent state of elevation and suspension.

That thinking not only violates the laws of physics, but also common sense.

This next chart shows how the S&P Composite Index (adjusted for inflation) for the past 150 years has expanded and contracted around the long-term trend (red line):

The contraction process that occurred after the two previous bubbles — dotcom and US housing — restored balance by taking the S&P back to trend.

The current bout of market expansion has ballooned to an unprecedented 178% above trend.

Getting back to trend requires a market contraction of 64%.

This is a force far greater than the one we saw in 2000/02 and 2008/09.

And that 64% correction is ONLY to get back to trend.

What if the downside momentum — fuelled by fast-fingered, indebted, and panicked sellers — push it BELOW trend?

Wall Street could contract by 70% or more.

I know, that sounds totally impossible…bordering on derangement. The consensus view is the Fed won’t let that happen. We’ll see.

The Fed’s policies have worked in an environment where social mood has been decidedly upbeat.

When the psychology of the mob switches from positive to negative, the pendulum on the Fed’s powers will swing from omnipotent to impotent.

The absolute certainty of market expansion and contraction can be found in The Yoga Spandakarika, described by Julie Smerdon:

‘As long as you’re alive, this pattern never changes.’

Regards,

Vern Gowdie,
Editor, The Rum Rebellion

Vern is also the Editor of The Gowdie Letter and The Gowdie Advisory — investment services designed to help everyday Australians avoid the financial pitfalls of a volatile economy and make informed decisions to grow their wealth for generations to come.

By Bill Bonner Editor, The Rum Rebellion

Change is coming.

Here’s David Leonhardt from The New York Times:

‘In Seattle (which publishes detailed data), the daily Covid hospitalization rate for vaccinated people has been slightly above one in one million. By comparison, the flu hospitalization rate in a typical year in the U.S. is more than twice as high. For most vaccinated people in a place like Seattle or San Francisco, Covid already resembles just another virus.

‘The risks are also low for unvaccinated children because Covid tends to be mild for them. (Plus, any child 5 or older can now be vaccinated.) For young children, Covid looks like a normal flu, if not a mild one.

‘As for long Covid, it is real but rare. It’s also not unique. The flu and other viruses also cause mysterious, lasting problems for a small share of people, studies show.

‘The bottom line is that Covid now presents the sort of risk to most vaccinated people that we unthinkingly accept in other parts of life. And there is not going to be a day when we wake up to headlines proclaiming that Covid is defeated. In many ways, the future of the virus has arrived.’

In other words…what’s the big deal?

Vanishing virus

Last week, we noticed similar articles in those other shills for the elite — The Washington Post and The Atlantic. The gist of them all:

Maybe we’re not going to defeat the COVID-19 virus after all. Better find some way to live with it.

As near as we can tell, the ‘lock-up-and-vaccinate-everyone’ approach has been a flop. The virus mutates and circulates anyway. And it still kills people who are vulnerable…and few others.

The better approach would have been to urge those at risk to lay low while the virus went through the population like a normal virus.

Instead, they made a federal case of it.

But now, do these articles mean that the elite has decided to downplay the disease? Maybe.

Argentina always seems to be one step ahead of us. Friends report that after some of the most severe lockdowns in the world, suddenly, a few months ago, COVID practically ‘disappeared’.

‘What happened?’ we asked.

‘An election. It took place on Sunday. The party in power decided that COVID was a downer. I guess people are still getting sick and dying, just like they always do. But we don’t hear anything more about it.’

Here in the Northern Hemisphere, meanwhile, a winter of discontent is coming. Food and energy prices are rising. Midterm elections are coming.

Democrats may figure they don’t need the additional monkey on their backs of COVID fatigue.

‘Normalisation’ may be a better tactic than more fearmongering.

Pathetic shill

Backing up…

Between 2016 and 2020, we were relentless in our criticism of Donald Trump. And our dear readers were relentless in their criticism of us.

But now that we don’t have Donald Trump to kick around anymore, we turn to Joe Biden.

In our view, in things that matter, there is little difference between the two. While they represent different wings of the ruling elite, they both flap up and down to protect the fake money system.

That is, neither would seriously consider cutting back government spending, deficits, debt, and printing press money, or raising interest rates.

You’ll recall that Donald Trump proudly proclaimed himself a ‘low interest‘ kind of guy…and that one of his first acts as president was to bully Jerome Powell and the Federal Reserve into lowering interest rates.

Joe Biden’s critical policies are no different.

But few dear readers mind our attacks on Biden. All seem to agree that the man is a pathetic shill for a degenerate cause.

Angry backlash

Today, our angry letters come with two complaints.

First, many readers still think COVID-19 is such a threat that it justifies suspending the Constitution and forcing people to submit to vaccinations. 

Second, many dear readers believe the planet is in mortal danger and that they can save it. They think there must be something wrong with us for not taking ‘climate change’ more seriously.

Here’s a smattering of opinions on the subject. Rosemary L:

‘Why don’t all of you naysayers go check out real data done by scientists on global warming? Some people don’t want to know or care to know. They might learn something that would be helpful to our environment and have to change some of their ways of doing things. Sad and destructive.

‘Many scientists have given warnings over the years, but people prefer to do nothing. Don’t blame Greta for at least trying. She’s probably smarter and a lot more concerned than any of you (an understatement). Good luck on the next 100 years for you and your family. Maybe living on Mars or the moon isn’t a bad idea after all, at the rate our climate problems are going.’

And John K takes a similarly sarcastic tone:

‘As against St. Greta, we have Saint Bill, who doesn’t “claim to know”, but of course, the insinuation of his whole piece is that he does. Or at least compared to Greta, the Joan of Arc of climate change. Because Greta took a yacht across the Atlantic, she must obviously be wrong about climate change/warming! Could that be a red herring?

‘And because there has been warming and cooling over thousands/millions of years, when there was no CO2 emissions from fossil fuels etc., does it follow that the present has no need to worry or to try to do anything about something (fossil fuels) that wasn’t there before and the Earth still survived?

‘No one ever did anything in the past and here we are, thriving because of fossil-fueled progress protecting us from “nature’s hissy fits” and being told that given a long enough perspective, things are no worse than usual, where “usual” is a few million years.

‘And maybe “global warming is a good thing”. (Hello? Still waiting for the reasoning on that one.)’

Neither The New York Times nor The Washington Post have yet issued a ‘Well maybe you were right all along’ on the climate issue.

Our guess is that — barring record-low temperatures…or an economic catastrophe brought about by ‘supply chain disruptions‘ in the energy industry — the ‘crisis’ will go on for many more years.

Known unknown

But the big difference between St Greta and St Bill is that the former says she knows what is coming…and she knows what can be done about it.

The latter is more modest. He doesn’t know what’s ahead…doesn’t know if it will be good or bad…doesn’t know if anything can be done about it…and doesn’t know if it would be worth trying anyway.

Most important, the former is so sure she knows something, she’s willing to insist that billions of people change the way they live, pay more for energy, and risk severe shocks and dislocations to the carbon-fuelled economy we all depend on.

The latter — who has actually built two solar-heated houses — would let people decide for themselves.

What neither of us knows is what will happen when 7 billion people, who now rely on fossil fuels delivered to them by long, complex supply chains guided (mostly) by market-set prices…

…are forced to switch to ‘alternative’ sources of energy controlled and directed by central planning bureaucrats, lobbyists, and politicians.

Collateral damage

We remind readers that it was during the lifetimes of some of the oldest among us that as many as 60 million people — in the Ukraine and China — starved to death.

Why?

Because their central planners decided that the great cause of their era was worth a little collateral damage. They enforced the plan…no matter what.

We have nothing at all against vaccinations. Nor against face masks, social distancing…solar panels…windmills…nor pre-1850 living standards. Those who want them are welcome to them.

But we don’t like people telling us what to do.

And the fellow who insists on making something compulsory is almost always a dangerous jackass.

Regards,

Bill Bonner,
For The Rum Rebellion