[7 min read]

Dan Denning

Bitcoin [BTC] will be legal tender in El Salvador if the president of the small Central American country gets his way. He probably will. News reports say he — Nayib Bukele — and his populist political party are in control of the legislature. What the man wants, the man gets.

But what is he getting? Few living, breathing, thinking human beings would dispute the notion that central banks are institutions of mass destruction. Worldwide, they’re conducting a monetary experiment that’s lowering your quality of life and increasing your cost of living at the same time. That’s what unsound money and inflation does.

So yes. Central banks should be abolished. All they’ve really succeeded at doing since 2008 is propping up heavily leveraged financial firms, protecting them from the consequences of their own stupid and reckless lending and investing decisions. End the Fed. End the RBA. End all of it.

Will bitcoin being legal tender make things any better? It depends. If bitcoin is ‘normalised’ by governments, it won’t be a monetary revolution. It will be absorbed, partly as a reserve asset in the banking system and partly as a medium of exchange in the real economy. It won’t exist as an escape pod from a corrupt, debt-based financial system. It will be window dressing.

Revolutions are not made of window dressing. They have rich, powerful, entrenched incumbents who fight tooth and nail (with the police, with secret police and surveillance, and with fear) to keep themselves in money and power. This is why you’re hearing so much talk about central bank digital currencies. They want to control whatever new form money takes.

If I understand Bitcoin correctly — and there are others at Port Phillip who understand it a lot better than me — it doesn’t need the support of billionaires or governments to be successful. That’s the whole point. The idea itself is strong enough. It’s ordinary people that need to see it, adopt it, and believe in it. Not governments.

But let me come back to one of the tools of the state to control you: fear. The UK government is considering moving back ‘Freedom Day’ from 21 June to some point in July. It’s come to that now, where people have to beg for their freedom back and be told when they’re allowed to be free again. Pro tip: it’s not a God-given or constitutional right if you have to ask permission to exercise it.

The reason Freedom Day may be delayed is the ‘Delta variant’ of COVID-19. The World Health Organisation has begun using letters of the Greek alphabet to denote which strain of the COVID-19 virus is the most prevalent or dangerous in given area. This is to remove the stigma of attaching a virus to a place (ie: the Wuhan virus, the UK variant, the South Africa variant, the Indian variant etc).

Lovers of the alphabet will be alarmed to recall that there are 24 letters in the Greek alphabet. If we’re only on the fourth — alpha, beta, gamma, delta — then this pandemic may never end. And perhaps, at some level, that’s an idea. Extend the emergency indefinitely. Extend the control of people indefinitely (permanently). Extend the lawless rule of medical experts with models not grounded in reality.

Lovers of cinema will note this story was told on screen in 1971. Charlton Heston starred in The Omega Man. He’s one of the last survivors of a global pandemic. The story is set in a post-apocalyptic world where he’s looking for a cure. Omega is, of course, the last letter in the Greek alphabet.

The movie was based on I am Legend, a 1954 novel by American writer Richard Matheson. Lovers of the American actor and rap star Will Smith will recognise the name from the 2007 film of the same name. Which brings us back to financial markets.

2007 was roughly the year when the financial crisis turned into what is now a crisis of our entire civilisation. The bailing out of Wall Street was bad enough. Fraud that had flourished wasn’t extinguished. But then the introduction of quantitative easing — money printing for the ultra-wealthy and financial asset owners — took things to a whole new moral low.

The result is what we have now all over the Western world — soaring financial asset bubbles in real estate and stocks, coupled with gross income inequality and vast wealth disparities between those closest to the source of the bogus money explosion and those in the ‘back row’ of our affluent society. It’s a mess.

And on top of this steaming pile of central bank excrement, we have the worst elements of our society gravitating toward politics. Along comes a pandemic which allows their psychopathic and sociopathic instincts for control and manipulation to flourish. If we keep putting up with this, there won’t be any freedom for ‘Freedom Day’ to celebrate.

What happens next? Well, we’ll get a disastrous, world-destroying variant that will finish off the Anthropocene epoch decisively. Or the fear agenda will be exposed as a weapon of mass psychological manipulation. And there will be a reckoning.

Another strain of financial crisis is inevitable. The soaring levels of government debt and central bank money printing — not to mention private sector leverage — virtually guarantee it. We’re closer to the end than the beginning. But the beginning of what? More on that next week.

Until then,

Dan Denning,
Editor, The Rum Rebellion

The Bonner-Denning Letter is co-authored by Port Phillip Publishing founder Dan Denning and legendary investment writer and publisher Bill Bonner. It connects the dots between markets, politics, and history as one of the only macroeconomic, ‘top-down’ newsletters in Australia. For a big picture perspective on the past, the present, and your investment future, click here for details on how to subscribe.

Bad Flick, Bad Ending
Bill Bonner

‘I picked a hell of a day to quit drinking’

Russell Casse in Independence Day

Today we look at another institution that has been zombified by the feds — the stock market.

The stock market is supposed to allow investors to exchange shares in profit-making, wealth-increasing, goods and services-producing businesses.

Nobody ever knows what any share is worth. So the market ‘discovers’ the price…minute by minute.

This price may be based on a single, most recent trade, but it sets the current value of all the similar shares outstanding. And it changes as new information comes forward.

In the US, prices are quoted in dollars. And the Federal Reserve has been tampering with the dollar’s value for many years. In the 12 months starting at the beginning of March 2020, it inflated the base supply of dollars (the Fed’s balance sheet) by 78% — with most of it going directly into the asset markets.

Even a lot of the stimmy cheque money has gone into the stock market. In a poll by Deutsche Bank, for example, at least half the respondents said they planned to put some of their stimmy money into stocks.

This leads — naturally — to price inflation in the stock market…which leads, naturally, to investors thinking their stocks are more valuable…which leads to a very unnatural situation…

…as both investors and Mr Market himself begin to act a little funny…reacting to the rising prices, rather than actually discovering what individual stocks are worth.

Dying business

We did not especially enjoy writing the above. It is a textbook-like description of a bubble. It sounds dull.

But bubbles are like wars — when normal, civilised life is suspended.

And today, the rational dollars-and-cents stock market has become a mad, mad, mad, mad war of the worlds, with fake money…fake interest rates…and fake prices…all guided by a delusional bunch of jackass generals at the Fed.

And this week, it was AMC Entertainment’s (AMC) turn to go berserk. On Wednesday, the price of the stock was twice what it had been on Tuesday. What happened?

AMC is a dying business…in a decrepit industry.

It has a chain of movie theatres. Even before the COVID-19 panic, it was in decline. And for many years, it’s been borrowing money to buy other theatres.

You have to wonder about the strategy.

Manufacturing horse-watering troughs at the beginning of the 20^th century was a challenging business too, the new automobiles didn’t stop to take a drink. And gaining market share was not necessarily the best way to deal with it.

In 2021, buying more empty theatres may not be such a good strategy either. It’s not theatres that AMC lacks, it’s customers.

Big home screens are cheaper than they used to be. And the range of shows you can watch at home is now far greater too.

In the typical AMC multiplex, you may have the choice of 8–12 movies. On Netflix, Amazon, et al, you have thousands to choose from. And the theatres no longer get the best movies first.

Watching a movie at home is much cheaper too. AMC charges about US$10 per ticket. At home, you can pay US$2.99…and the whole family can watch.

And for the price of one evening out at the movies, you can buy your own vintage popcorn maker.

This is, of course, bad news for AMC. This flick is probably not going to have a Hollywood ending.

Crazy investment

But thanks to the Fed’s bubbly, zombified stock market, AMC is a big hit.

The company is losing money; ticket sales in the industry have been going down for almost 20 years. AMC also has more than US$12 billion in debt that — by the looks of things — it can’t repay.

Still, as of this morning…the stock is up nearly 2,500% for the year.

No fools, they (the insiders at AMC), decided to take advantage of Mr Market’s apparent incapacity. They know their shares are overvalued. So what do they do? They sell more!

In two separate offerings in the last seven days, the company sold 20 million shares and raised US$800 million. That sell-a-thon followed earlier offerings this year, which altogether brought the zombie company US$1.6 billion in new blood.

But it’s not as if they were trying to pull a fast one. They’re just going along with the gag. In its offering document, AMC clearly warns the gamers:

‘Under the circumstances, we caution you against investing in our Class A common stock, unless you are prepared to incur the risk of losing all or a substantial portion of your investment.’

The story is a bit more complicated (we are not even trying to follow it carefully), but the corporation needed the shareholders to authorise more shares. So AMC’s CEO, Adam Aron, aka ‘Silverback’, tried to persuade them, giving us this gem:

‘If you arm us with the tool — meaning stock as the tool — to go find value-creating opportunities for AMC shareholders, we can do that.’

Go find ‘value-creating’ opportunities? Management seems to be turning itself into a special-purpose acquisition company (SPAC) with no time limit.

What will it do with the money? Nobody knows. Maybe it will stumble on something.

But what a crazy way to invest — buying a stock for 25 times what it is probably worth…giving your money to people who, just six months ago, were warning of bankruptcy…hoping they’ll find something else. Makes us dizzy just thinking about it.

Slick move

But the fun isn’t over…

AMC then pulled what might be one of the slickest moves we’ve seen…one that could set the pace for a whole new level of hype…and nuttiness. It decided to talk directly to the players who were pushing up its stock.

Here’s the announcement…a work of genius:

‘AMC Entertainment Holdings, Inc. (NYSE: AMC) (“AMC” or “the Company”), announced today that it is launching AMC Investor Connect, an innovative, proactive communication initiative that will put AMC in direct communication with its extraordinary base of enthusiastic and passionate individual shareholders to keep them up to date about important company information and to provide them with special offers. Over the last several months, AMC has seen its retail shareholder base grow beyond 3 million owners. With this sizable number of retail shareholders, AMC is taking a groundbreaking new approach to investor relations and investor communications.

‘[…]

‘Beginning today, shareholders can sign up to receive special offers and investor updates by registering at amctheatres.com/stockholders. Investors who sign up starting today and in the coming weeks will be awarded with an initial free large popcorn usable this summer when attending a movie at an AMC theatre in the United States. The offer will be made available in their AMC Stubs rewards account.’

Matt Levine at Bloomberg summarises:

‘If you buy AMC stock it comes with popcorn.’

AMC is boldly going where no company has ever gone before…into the dark heart of the Reddit crowd…where it can stoke the fire of enthusiasm for its new product.

We’re not talking about its old theatre seats; nobody cares about them. We’re talking about its real product — its own stock.

Darwin Award

Whew!

And what do we take from this story? The price of the stock alone doesn’t have much information content. But combined with the background story, it is almost an encyclopedia of investing no-nos.

An inflated market…fake, free money…an overhyped stock…a bubble atmosphere…too much debt…bad business…falling sales…huge volume…staggering volatility…

And what’s this? What is Mr Market whispering? That the company is actually worth 25-times more in June than it was in January?

Or that the whole market is setting itself up for a disastrous ending…like a cynic’s version of Independence Day, where the aliens attack Earth — and win!

Regards,

Bill Bonner,
For The Rum Rebellion

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