“Mark Twain was right One of the most important reasons for studying history is that virtually every stupid idea that is in vogue today has been tried before and proved disastrous before, time and again.” – Thomas Sowell
The best thing about being old is I have gotten to experience cycles repeating themselves. With leap year upon us I want to discuss things that repeat, but less often. Take the stock market for an example, huge companies are jumping 15-20% in a day. Everyone is amazed but not me. After watching Qualcomm or Cisco rise in the dot com bubble, Nvidia and its ascent is blasé. Bitcoin yawn.
January 3, 2000: Yahoo stocks close at an all-time high of $475.00 (pre-split price) a share. This price propelled them to the most valuable company in the world at the time.
September 26, 2001: Yahoo stocks close at an all-time low of $8.11. The day before, it hit an intra-day low of $8.02 (both figures are pre-split prices)
This is in 21 months. When someone tells me something can’t crash, they are wrong. Everything can crash. When I hear Nvidia rising in market capitalization by a Disney in a day I think back to bubbles of the recent past. NFTs were a thing very recently, AMC apes were a thing very recently, and Kathy Wood was the hottest fund manager on Wall Street not very long ago. These have gone the way of the typewriter, Kodak, and waiting until marriage to have sex. Nvidia sells chips and all of their customers are talking about building their own chips in house. Other chip manufacturers are all racing to catch up to Nvidia’s technology. Lastly, there are a bunch of flaws with this AI technology making mass adoption of these products very doubtful in the short term. None of these facts matter to the Nvidia bulls until they do. The exodus will be very fast and very painful, but it could happen tomorrow or next month or next year. It’s like a dog chasing a car, it is so fun, and everyone wants to join you until there is a wolf pack all chasing a car. Then the car hits its brakes, and every dog breaks his face. Then it is not so fun. Well, that is going to happen so be on the lookout for that.
What else is going to repeat? Oh yeah, people think I have forgotten my mantra. Who is going to buy the bonds and at what price? Gadzooks, no I have not. We have talked about the Portuguese, the Spanish, the Dutch, the French, the British and now the US all having a reserve currency status. These usually last about 80 years or so and then the country spends too much, gets itself in expensive wars, and eventually loses that privilege. Well, the US is holding that privilege near and dear to her turning socialist heart. The social programs, government interference, and entitlement programs are kindling to the demise of the dollar, but the spark may very well be the interest expense on the national debt. Donny T and Joey B have proven to be spend what they don’t have administrators of our country and if that is our option in November, then we can expect more of the same. Janet Yellen has chosen to pay 5% plus on near term funding versus 4% on longer dated paper, why? She can’t sell enough long term debt and she is terrified that the bond vigilantes will see through her charade. If you had told me that I would be using Kathy Wood and sex and Janet Yellen and see through in the same sentences I probably would have just stayed in bed this morning, but here we are.
We had two bad auctions on Monday followed by a solid one on Tuesday. These bad auctions are becoming more and more frequent. This is why they are important to follow. You must channel your heavyweight Floridian rapper and say it with me now, another one. There is another one next week and early next week and later next week. We have to sell so much debt to stay afloat, it is certifiable. Now, we are not alone in our fiscal misdeeds. Other countries have the same problem or worse. The dollars held outside of the US in the Eurodollar system dwarf our domestic dollars. We also live in a much more tightly connected financial environment than when those other countries lost their reserve currency status. That doesn’t mean we won’t lose it, we will. It just means it will be longer and then more painful when it does fall. The Brics countries know this and are planning accordingly. We, as a nation, are not.
A good piece of advice from my childhood that was often repeated is that you don’t discuss money, politics or religion in polite company. If you did, everyone that was cultured and polite would look at you like you had just kicked a puppy. It was a real faux pas. I can’t remember when this changed, but I assume around the advent of social media. Can you imagine social media without these three topics? An online environment of ginger jokes and cat videos uninterrupted by the wailings of two senile old men, social media influencers taking selfies 75 people deep in a national park, and real estate gurus telling you to get further into debt and leverage everything you have to get the lifestyle of your dreams. Yawn.
I read The Great Gatsby and the stories of new money millionaire Jay Gatsby in his desperate pursuit to impress Daisy Buchanon. The wealth they had then was real, not borrowed or photoshopped. If I have to pause getting into my CTPC jet one more time for an influencer to just take a pic in front of it, I shall be vexed, incredibly vexed. The Jazz age of F. Scott Fitzgerald was an age of excess as well. The nation was coming off a war and a pandemic. People were yolo-ing because they had just seen their friends, their family members die in a war or of Spanish Influenza. They were the last financial kamikazes of their era. Speakeasies were in, Babe Ruth was King, and political figures were corrupt.
The Teapot Dome scandal ensnared Albert Fall, the secretary of the Interior leasing naval oil reserves. He was charged with bribery. I guess he wasn’t as clever as those shrewd traders Nancy Pelosi and Mitch McConnell. These criminals have nothing on the criminals of yesteryear, yawn.
The election of 1924 was also interestingly similar only, the incumbent was a fly fishing Republican, Calvin Coolidge. It was the Democratic party that had two candidates. William McAdoo represented the rural Protestant and pro Prohibition sect while Alfred Smith represented the urban, immigrant, and drinking sect. The country was incredibly divided. I see Nikki Haley get 40% of the Republican primary vote and I think that there are just too many people that are voting against Trump for him to win in the general election. That is what happened to McAdoo and Smith, neither could inspire their party and the center to win the general election. I think Trump faces that in the general, and if for some miracle or conviction to Trump, Nikki Haley is the Republican candidate and I think she does that to Biden. It is a weird dynamic, but original yawn.
As mentioned, the religious conflict was between Prohibition and drinking. Bootleggers were the criminals of the day, and fortunes were made. People wanted to drink, and they broke the law to do it. Gangsters patrolled our cities like Al Capone in Chicago, Bumpy Johnson in Harlem, and Nucky Johnson in Atlantic City. Violence soared in the streets of the cities much like the drug wars of today. Our inner cities are filled with cocaine and fentanyl, but people are legalizing marijuana. The religious are against it all, but make up a much quieter segment of the population today as people don’t find religion until times are tough, not when they are easy. Moral corruption in our streets yawn.
Money was also flowing in the 1920s. People speculated in the stock market on margin. The market rallied and lots of people became rich. People bought cars and appliances and didn’t smell horse shit all day. It was a magical time. Today, people are invested in stocks but not as much on margin. What they do today is borrow from their portfolio to take vacations and buy boats with tax free money because it is a loan to themselves. They also take HELOCs out on the homes. Home equity line of credits. These are great. You buy a house, the price always goes up, you take money out tax free and spend it on whatever you want. It beats paying taxes. Now the margin came to a crashing end in 1929, so what happens when the markets turn, and the equity falls in those houses? What happened to borrow against unrealized capital gains and those gains disappear? It’s just money we can make more becomes a problem when things don’t just magically go up anymore huh? Bubbles, yawn.
That’s where we currently reside. We are in that little sliver of time between a shoeshine boy telling Joseph Kennedy stock market tips to the retail crowd today showing off their portfolios that only contain one name, Nvidia. These are all the good things to notice. What a fun time it has been, and it might continue. But I’m an old 8 track man that can read, and what happened next wasn’t good. Markets fell, people lost their homes, and people starved. It scarred a group of people for their entire lives. The people that were partying one decade were lined up in soup lines the next. It was the era of deflation. Money wasn’t tight, it was non-existent. That is what will happen very soon here. Unless the government steps in again and saves the day by printing gobs of helicopter money. Then it will be inflationary, highly inflationary. We just got a taste, but the next bailout has to be bigger because the debt is bigger. This has also happened before, so we get to watch- what do they choose? Deflation and depression or inflation and the end of the US dollar reserve currency. That’s it. The choices are clear, but the timing is not. We still have to continue with our lives, but that doesn’t mean we can’t prepare for both scenarios. We have talked about developing skills. We have talked about alternatives to the dollar. We have talked about forgetting the penthouse and remembering to avoid the outhouse. Nothing has really changed other than we have gotten closer to the spark. Keep an eye on bonds, the banks, and even Asian and European markets as all could be the spark.
When it happens, it will happen too quickly to prepare so do it now.
Sincerely Yours,
C Thomas Printer
On this date in history… 41 years ago to be exact, the final episode of Mash aired in front of 106 million viewers. Supper followed.
Also born on this date…. In the spirit of today’s episode bootlegger and gangster Bugsy Siegel, the man who founded the Las Vegas Strip.
Thank you for listening today and you can find all of our articles and more on our website cthomasprinter.com.