Wednesday, 8 December 2021 — Gold Coast, Australia

By Vern Gowdie Editor, The Rum Rebellion

[8 min read]

• An interesting dichotomy
• The world 22 years from now
• The one thing we need to focus on
• The final week of Rum Rebellion

Dear Reader,

In the financial world, 1999 is best remembered as the year before the dotcom bust.

For those who were there, it was a heady time. Speculation was rampant. IPOs with anything remotely related to dotcom were a licence to print money. A new paradigm awaited.

It was also the year when the drug rapamycin — an immunosuppressant to prevent the rejection of transplanted organs — was approved by the US Food and Drug Administration.

Here we are in 2021.

The air around Wall Street is thick with speculation. Margin debt (in inflation-adjusted terms) is almost double that of the dotcom and US housing bubbles:

And rapamycin appears to be far more than an immunosuppressant used solely for anti-rejection. There are promising signs the drug has a wider application in slowing down the ageing process.

After 22 years, the world has provided us with an interesting dichotomy.

When it comes to health, we are living longer, but when it comes to wealth, we are living on borrowed time.

The world 22 years from now

Add 22 years to your current age. If in 2043 you’ll be in your 70s, 80s, or 90s, how much longer could you expect to live for?

Another 10, 20, 30, or even 50 years? Inconceivable? Don’t be so sure.

Every year that ticks by, scientific progress is evolving through its trial-and-error processes.

Between now and 2043, who knows what further advancements are going to be made in society’s search for eternal youth?

Living beyond 130 is a real possibility.

In 2043 could we have another echo of history?

Will a youthful-looking President Michelle Obama (aged 79) be facing impeachment?

Are Apple and Samsung still going to be the dominant mobile phone providers? Or will mobile phones be a relic of the past?

Hopefully for the Kennedy clan it’s a year without mourning.

Will there be a biotech boom…companies rushing to the IPO market with their latest anti-ageing product?

Could there be another virus — an unintended consequence from all those epigenetic tweaks?

Will a 79-year-old Keanu Reeves (with a biological age of 40) be starring in another Matrix?

Who knows?

The reason for this sneak peek into what’s happening in the world of biotech is to alert — not alarm — you.

We know increased longevity is coming…we just don’t know when and how long our lifespans could be extended.

However, we need to be prepared and plan for it.

A society full of older people will bring with it a host of changes.

These are some of the obvious ones…

• Marriage: Will it really be a contract that includes…till death do us part?
• Retirement age: Will it extend out to 70, 85, or even into the 90s?
• Welfare funding: Female eligibility age for the Age Pension used to be 60. In recognition of our ageing society, female Age Pension eligibility has been pushed out to 67. Over the next 20 years, this could go be pushed out to 75. Don’t be surprised if the family home is counted as an asset…forcing people into reverse mortgages.
• Healthcare: Will it be more proactive than reactive? Better understanding of our body’s genome could result in a transition to preventive medical practice.
• Generational friction: Boomers hanging round for even longer and really ticking off Gen Xers and millennials.

A seismic shift in the traditional pyramid structure of society is going to have intended and unintended consequences.

Second-guessing the potential variables is well beyond my intellectual scope.

The one thing we need to focus on

To keep it simple, I focus on the one single thing that will remain constant throughout all this change: the need for capital.

If I have capital, I don’t have to be as concerned about whether…

a) Age Pension accessibility rules may or may not change.

b) Access to anti-ageing treatments will or will not be subsidised by government.

c) Healthcare costs rise or fall.

d) We’ll live too long and outlive our capital.

All of this thinking takes me back full circle to 1999.

That was the final year of the secular (long-term) bull market, as defined by Crestmont Research.

The tech wreck in 2000 was the start of the secular (long-term) bear market.

Since 2000, the secular bear has tried on three occasions (2000/02, 2008/09, and 2020) to correct the market excesses.

Each time the market has commenced this cathartic exercise, the Fed has marshalled the forces of low interest rates and QE to keep the secular bear at bay.

The secular bear may have retreated, but it has not gone away.

Pendulums swing for a reason. Forces propel them in one direction and then in another.

Assuming the market cycle is still operational, then physics tells us the further you take the valuation pendulum to one side, the equal and opposite force will move it in the opposite direction.

The above chart clearly shows momentum is building. The Fed has used an enormous amount of energy in its fight against the gravitational pull of market forces.

Pushing, pushing, pushing the market up and up.

As history shows us — at some point — gravity always wins. And as they say, the higher you go, the harder you fall.

A 65% fall from this level would take the Dow back to 10,000 points and a 75% fall goes back to 7,000 points.

While these percentages (like the prospect of living well beyond 100) might seem inconceivable now, they’re (based on long-term valuation metrics) a very real possibility.

The Fed has been conducting its own anti-correction clinical trials on the market. Massive doses of zero-bound rates and QE have proved effective in reversing the correction process.

However, is it possible the dosage levels have been so great, the market no longer responds in the same way?

The US share market is ageing and the Fed’s efforts have extended its life for far longer than anyone (except the supreme optimist who believes market cycles have been repealed) could have imagined a decade ago.

However, the Fed’s cure is not the elixir of life for the market. It’s just prolonged the use-by date.

This market will die from the same ‘diseases’ as all markets that have gone before it…overextended valuation levels based on nothing more than optimism and speculation, artificially inflated earnings, excessive levels of high-risk corporate debt, and margin lending.

When this market makes its last gasp is unknown.

However, if I want to keep my capital for the long (and what could be much longer) term, it means I have to wait this out.

There’s a real irony in the intersection of these two big trends.

At the same time, we’re creating the means to live much longer lives and destroying the means needed to enjoy those added decades.

The thought of living on welfare from 80–130 is what gives me the resolve to wait patiently for the awakening of a rampaging secular bear.

For now, my focus is on the health, well-being, and security of my wealth.

The final week of Rum Rebellion

This is my final article for The Rum Rebellion.

It’s been a privilege and a pleasure to share my views with you each week. Along the way, readers have tossed brickbats and bouquets. Both were welcomed. Your feedback is a vital part of the inspiration.

Thank you for taking the time each week to read the musings of (what Greg calls us) this stable of misfits.

As from next week, The Rum Rebellion will be merged with The Daily Reckoning Australia.

I look forward to your continued loyal readership and of course, your valued feedback.

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

‘“Well, my dear Pangloss,” Candide said to them, “When you were hanged, dissected, whipped, and tugging at the oar, did you continue to think that everything in this world happens for the best?”’

Candide by Voltaire

You’ll recall last week we began by wondering: what if instead of being too negative in our outlook, we were too positive…too Pollyannish and Panglossian?

Shouldn’t we explore the possibility?

And so, we’ve been looking at the dark side. Today, we continue our history of the US’s Frigid Nightmare.

But first, an interruption with the latest news. The ‘jobs report’ on Friday was pathetic. Here’s CNBC:

‘The U.S. economy created far fewer jobs than expected in November, in a sign that hiring started to slow even ahead of the new Covid threat, the Labor Department reported Friday.’

The real story is much worse. If you look at hours worked — the real measure of how much labouring is going on — you see that it has been increasing at the average annual rate of 0.3% for the last 14 years.

That’s slower than population growth over the same period, which was roughly 0.8% per year, on average.

In other words, the real economy has not been growing at all. Nor have real jobs.

Where does this lead? That’s what we’re looking at in our ‘history’ of the crisis ahead.

Fragile system

It began when the electrical grid collapsed.

On paper, there was enough capacity to keep the juice flowing. But in practice, a centrally-controlled mixture of highly-manipulated solar, wind, and other ‘renewable’ energy sources was more fragile than it looked.

Without honest price signals to guide them (everything was either subsidised or penalised) and with inflation moving fast to confuse them, investors put little new money into the energy sector.

And what was invested — incentivised by the government — was put into projects that were politically attractive, but often not very productive.

Then push came to shove. A very cold winter. Cloudy skies. And no wind.

The nation’s energy grid — or most of it — simply collapsed.

Systems down

Homeowners had been pressured into switching to all-electric heat. It was ‘greener’, they were told.

Electricity prices were controlled to help the ‘Great Transition’. Internal combustion engines were banned. Drilling for oil was curtailed.

And then…when the power went off…what could people do?

Some huddled around open fires. Others took refuge in schools and public buildings. But they too soon grew cold.

Back-up generators ran night and day. But they ran out of fuel. And with no electricity, the pumps wouldn’t work. Nor could their new electric cars be charged.

Practically all the nation’s output and delivery systems depended on software. Software ran on computers. Computers ran on electricity.

And electricity now depended on the sun…and the wind…backed up by a woefully inadequate supply of energy from traditional sources.

And until the grid lit up again, almost nothing moved.

From coast to coast, hungry mobs looted darkened stores. But it was not sneakers or big screen TVs they carried off, it was food.

The mobs included people on Social Security as well as young hoodlums. And with electronically controlled inventory systems ‘offline’ and trucks sitting idle, the shelves were quickly cleared and not restocked.

Cold and miserable

Out in the country, it was better at first. Cows were slaughtered in the field. Locals drew on their farm tanks for emergency heating fuel. Many people still had wood-burning stoves.

And they had guns. They used them to drive off refugees from the suburbs.

But even in the country, farms were no longer self-sufficient. Few had chickens in the yard or pigs in the sty.

Instead, they grew cash crops, such as wheat or soybeans. And like their cousins in the suburbs, they relied on just-in-time deliveries at their local food stores, rather than just-in-case food at home.

And then, all over the country, pipes burst…toilets cracked open…pets went missing…basements flooded…and ceilings were ruined.

People were hungry…cold…and miserable.

Gut punch

After a couple of weeks, power was restored to most of the country and people counted up their losses. Thousands had died — mostly elderly people — from ‘exposure’, stress, and hunger.

‘Now we can get back to normal,’ said President Buttigieg. But ‘normal’ was no longer within reach. Something else had been broken. Something more important.

A headline from The Daily Beast from Saturday, 4 December, 2021 put it this way: ‘America Is One Gut Punch Away From Throwing in the Towel on Democracy’.

Now the gut punch had been delivered. And the whole nation trembled…doubled up in fear, pain, and anger.

The Nightmare Winter was about to get much worse.

Stay tuned.

Regards,

Bill Bonner,
For The Rum Rebellion