‘Investors’ Get Bitten

Since the money madness began in earnest in March 2020, consumer spending — as measured by real retail sales — has gone up 13.5%.

That’s thanks to the Fed’s giveaways, stimmies, non-repayable loans, deficits, and other money-shuffling claptrap.

According to Say’s law, real demand (purchasing power) comes from output. In other words, you gotta have something to spend. And you get it by having something to sell (labour, product, service, etc.).

In the same period as consumer spending, real output (real personal income less transfer payments) went up too, but by less than 1%.

So demand (based on phony money printing, not output) rose more than 13 times faster than supply.

What you’d expect

What should happen under these circumstances? Prices should rise. Which is exactly what happened.

Last month, the median price of a new house climbed to over US$400,000 — a 27% increase from over two years ago.

Even by the Federal Reserve’s own inflation mismeasurement, the ‘PCE deflator’ (Personal Consumption Expenditures) — a measure of inflation based on changes in personal consumption — from October 2020 to October 2021, price hikes averaged over 5%.

This is the highest reading in 31 years…and more than two and a half times the Fed’s own target.

And the PCE deflator for durable goods came in at its highest level in 41 years.

This is very gratifying and reassuring to us. Night still follows day. Gravity still holds everything down to Earth, even in Australia. And the law of supply and demand still works.

HOODWINKED! Why Australia’s ‘miracle’ economy is a farce

Bonner’s law

Not equal to supply and demand or Say’s Law, but still on the books, is Bonner’s law and its corollary.

Bonner’s law says that ‘when the money goes, everything goes’. The corollary tells us that things in the financial world especially get a little funky.

So when the Fed added another US$5 trillion (no point in trying to be precise, we’re talking trillions here), it was bound to set off some weird stuff.

And we’ve we enjoyed laughing at many of the — cryptos, NFTs, meme stocks, SPACs, Cathie Wood, Elon Musk, et al.

And they keep coming!

From the St Louis Fed comes news that US bank deposits are up some 33% since the beginning of the pandemic. That’s a lot more cash in search of something to buy.

Not surprisingly, the Russell 2000, the broadest measure of US stocks, more than doubled in that time.

Since May of this year, Goldman Sachs’ index of money-losing tech companies has gone up 14%.

Another rug pull

And also last week, we learned about yet another ‘rug pull’ in the crypto casino. Here’s Benzinga:

Avalanche (CRYPTO: AVAX)-based meme coin Snowdog (CRYPTO: SDOG), themed after Dogecoin (CRYPTO: DOGE), which was meant to last only eight days has ended in a rug pull.

What Happened: As per a tweet from the project’s handle, on the eighth day after the launch of the coin, a “massive buyback” was to be orchestrated.

The buyback was not successful and a single address rugged over $10 million by swapping SDOG for other cryptocurrencies.

As near as we can tell, people thought that they would make money by buying a crypto that was yet another spoof…on the gag known as Shiba Inu [SHIB]…on the joke by Jackson Palmer and Billy Markus, known as Dogecoin [DOGE].

The ‘greater fool’ approach is as reliable as any other. It rests upon the assumption that there is always someone dumber than you ready to buy your assets for more than you paid for them.

The creators of the Snowdog [SDOG] token weren’t taking any chances. If there were greater fools out there, they would find them.

So they put out the word that they were going to spend US$40 million buying the coins back in eight days. They called it a ‘game theory experiment’.

Only someone with an IQ substantially lower than his body temperature would believe such a thing. But many did and the Snowdog token rose to be worth more than US$6,000.

The insiders then quickly exchanged their holdings for other cryptos, taking out some US$10 million worth in a matter of hours.

This ‘rug pull’ sent the price of the poor Snowdog down 99%.

This must have come as a shock to the buyers. The cute little puppy didn’t come when they called it. Instead, it pooped on the carpet, bit the hand that fed it, and took off running.

How could it happen, they wondered?

But it is a relief to us. God is in His heaven. The queen is on her throne.

And investors didn’t get what they expected; they got what they deserved.


Dan Denning Signature

Bill Bonner,
For The Rum Rebellion

PS: The Rum Rebellion is a fantastic place to start your investment journey. We talk about the big trends driving the Australian Economy. Learn all about it here.

Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries.

A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America’s most respected authorities.

Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally.

With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance.

Bill has been a weekly contributor to The Rum Rebellion.

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