Tuesday, 30 August 2022 — Gold Coast, Australia

By Vern Gowdie Editor, The Daily Reckoning Australia

[5 min read]

• Real people. Real losses. Real pain.
• On the cusp of collapse
• The REAL meaning of wealth

Dear Reader,

2021 will go down in the history books as ‘The Year of Delusion’.

Anything that could be floated higher by a deranged central bank stimulus policy, did so.

Value, literally and figuratively, meant nothing.

The worthless became priceless.

If it was going up, it would continue to go up.

No amount of reason could persuade the FOMO brigade to exercise logic and act with restraint.

For those with long memories of bubbles past, 2021 was a long year.

Finally, as the year ended, some sanity began to prevail.

The hottest of the speculation hotbeds — cryptos and NASDAQ — thankfully and belatedly, topped out in early November.

2022 is when the cost of this period of excess and recklessness starts to be counted.

The collapse of this massive financial markets Ponzi scheme is still in its infancy.

Early victims, predictably and regrettably, are coming from the collapse of various crypto scams.

What was once considered priceless has reverted to its true value…nothing.

The collapse of various crypto pyramid schemes (and mark my words, there’s more to come) has turned into a lawyer’s picnic.

Bankruptcy filings.

Lawsuits countered by more lawsuits.

Liars accusing other liars of lying.

If you’re a spectator, and NOT a trapped speculator, it’s all great theatre.

However, for the millions who, knowingly or unwittingly, walked, ran, or high dived into this web of deception, it’s a sad and sorry situation.

The judge presiding over the Chapter 11 bankruptcy of Voyager Digital asked affected persons to write a ‘victim impact statement’…pleading their case.

Here’s an edited extract from one of the publicly available letters (emphasis added):

‘My family worked for over 24 years to build a family business together that was all our blood, sweat, tears and that took us away from our families for years. We worked hard and long for those twenty-four years. In December of 2020, we sold our family business…I took about ½ of my proceeds from the sale of our company and put it into Voyager on their crypto application…

‘I have four children aged 16 years, 12 years, 11 years and 8 years old currently. That money was an investment into their futures to pay for their college. I put over $350,000 into USD coin because of the promises of “safety and security,” from Voyager and 9% interest and “FDIC insured,” USD coin. I also put over $700,000 more in Bitcoin and Ethereum that are now decimated…’

24 years to build family wealth and 18 months to destroy it…heartbreaking.

Versions of this story are told in EVERY boom and bust.

The sudden loss of wealth can have devastating consequences…investment in children’s futures jeopardised, homes foreclosed on, loss of self-worth, mental illness, and even suicide.

In the dull and boring times, the psychological impact of markets is of little interest.

Emotions remain rangebound.

However, in the before and after of a bubble, emotions breakout…running to euphoric highs and plunging into despair.

On the cusp of collapse

In recent issues of The Gowdie Letter and The Gowdie Advisory, I’ve written at length about the behavioural patterns of bubbles and busts:

This template of emotional responses is based on the study of human nature dating back to Tulip Mania in the 1630s.

Unless 500 years of primal impulses have somehow been miraculously erased from our DNA by Fed policy, we’re teetering on the cusp of a collapse in confidence…leading to fear and despair.

As the UNreal markets return to the REAL economy, real people are going to suffer real losses and real pain.

Here’s a dose of reality from Bloomberg on 26 August 2022 (emphasis added):

‘Greg Jensen, co-chief investment officer of Bridgewater Associates, expects that equities are facing a significant drop to align them with the real economy.’

How far out of whack is the US market with the underlying economy?

The Buffett Indicator (US share market value as a percentage of GDP) indicates a ‘Return to the Mean’ collapse in the order of 60% is required for the realignment:

Remember, this is the potential loss on the broader US indices.

Individual holdings, especially those in the once-considered ‘priceless but worthless’ realm, are going to be smashed…and I include cryptos in this category.

Massive losses are coming.

Fear. Panic. Despair.

The opposite emotions associated with a boom are going to conspire to drive prices much lower.

If booms bring forth irrational buying, it stands to reason a bust will herald in a period of irrational selling. Again, this mob mentality isn’t new…it too dates back to Tulip Mania.

More letters. More pleadings. More heartbreaking stories. More shattered dreams.

To avoid being one of those who spend their days trapped with thoughts of regret, it’s crucial to understand…

The REAL meaning of wealth

Etymology is the study of the origin of words.

Wealth is a word that’s morphed into a meaning that’s at odds with its origin.

The Merriam-Webster definition of ‘Wealth’ is:

‘Abundance of valuable material possessions or resources.’

This is the widely accepted meaning we use in our everyday discourse.

However, the origin of ‘wealth’ has nothing to do with material possessions:

Wealth is the result of combining ‘well’ and ‘health’.

The real wealth in a family is measured by the health and wellbeing (physically and mentally) of its members.

Please take the time to understand the emotional cycle associated with wealth creation and destruction.

If we focus our actions on the original meaning of ‘wealth’, then the modern-day version of ‘wealth’ should take care of itself.

Regards,

Vern Gowdie,
Editor, The Daily Reckoning Australia

By Bill Bonner Editor, The Daily Reckoning Australia

Dear Reader,

‘Sometimes I’ll start a sentence and I don’t even know where it’s going. I just hope I find it along the way.’

White House Press Secretary Karine Jean-Pierre

The other day, Bloomberg broadcast another painful performance by White House Press Secretary Karine Jean-Pierre. Asked how the administration can square student loan forgiveness with its other fiscal goals, Ms Jean-Pierre gave a rambling, incoherent response.

The only complete sentence we could detect was this:

‘We do believe it will be fully paid because of the work this president has done with the economy.’

Of course, it makes no sense. The president has done no ‘work’ with the economy at all. He has only burdened it with more costs, regulations, and claptrap. Between the infrastructure, Ukraine aid, silicon chip, and ‘green’ energy boondoggles, the Biden Bunch added almost US$2 trillion in new spending. Debt forgiveness can only make inflation worse. 

However, the real problem is not her; so many federal programs are inexplicable…except as schemes to rob the taxpayers.  

How it ‘works’

Scam them…tax them…rip them off…herewith is a Dummies Guide for Ms Jean-Pierre; here’s how it works:

The long-suffering middle classes stand in line to give their support to politicians…and then get stabbed in the back by them. Not once…but over and over…

And after so many wounds, they still don’t understand how ‘the system’ works…how it’s designed to separate them from their money. A subsidy to the solar hustlers…‘cancelling’ student debt to buy votes…a huge gift to one group of thugs in the Eurasian heartland so they can kill another group of thugs — and all the money has to come, yes, from ‘The People’.

The salt of the earth…the common foot soldier and Girl Friday; they are ‘The People’. They think they’re in charge. They think the feds work for them. But their thoughts are as muddled and misshapen as Ms Jean-Pierre’s sentences.

Meanwhile, the feds…

…send their sons and daughters to fight in stupid, pointless wars — Iraq, Afghanistan, etc…

…use their money to back corrupt regimes overseas and incompetent bureaucracies at home…

…lure them into debt with ultra-low mortgage rates, student loans, and ‘Green’ subsidies…

…and then pass an ‘Inflation Reduction Act’ that actually forces them to pay even more for everything…

But wait…we’re not finished…

…hit them with the ‘inflation tax’…lower their real wages…then, increase house prices so they can’t afford a roof over their heads.  

The Fed’s fiasco

The Fed lent money at such low rates that Wall Street firms were able to turn single family homes into an asset class. The builder made money. The realtor made money. The mortgage lender made money. And now a whole new intermediary was in the picture — making even more money off the middle class.

Families looking for a place to live often had to bid against billion-dollar corporations. Not surprisingly, the Wall Street firm won the auction; it was backed by the Fed’s money. And then if there were capital gains to be made, Wall Street made them, not homeowners.  

Prices rose higher and higher, to the point where, in 2022 as in 2007, the typical family could no longer afford the typical house. And now…even the pros are pulling out of the single-family real estate market. And house prices are falling.

Here are the latest headlines from Bloomberg:

‘Blackstone Single-Family Landlord to Halt Home Purchases in 38 Cities’.

‘Home Partners of America to press pause beginning Sept. Company cites home price growth, market demand, regulations’.

Another ‘rug pull’ by the Fed? No, this time they are tearing out all the carpets and the kitchen sink too!

Those who decided to rent rather than buy aren’t doing so well, either. Rents are still rising. From CNN: ‘US rents hit a record high for the 17th month in a row’:

‘The national median rent hit a new record high of $1,879 a month in July, up 12.3% from a year ago, according to Realtor.com. While rents have been hitting new records for nearly a year and a half, there are some early signs that the market may be starting to cool off: July marked the sixth-straight month of moderating growth, retreating from a 17% year-over-year rent increase in January.’

What beautiful flimflam — press down on the brow of labour a crown of ultra-low interest rates so they have to stretch to buy a house…and then crucify them with falling house prices!     

Regards,

Bill Bonner,
For The Daily Reckoning Australia