Monday, January 10, 2022

Shortages may have started the deflation of the most insane bubbles

When the Covid hysteria started in February 2020 (and the fear actually peaked on March 23rd, 2020, long before the median Covid death), it was clear that the cash was going to lose its value. In early March 2020, I told you to invest into stocks on the following week. It was a great time but March 23rd was a better time.

At any rate, some people moved into stocks which was the most important good decision, the identity of the stocks didn't matter much. It was clear (from the recent dovish obsession) that the central banks and governments would react to Covid by a huge wave of free money or helicopter money, respectively: it has been sold as the universal recipe for all economic problems for more than a decade. In reality, they should have reacted in the opposite way, and perhaps at the very beginning (or almost from the beginning), because the lockdowns have primarily restricted the supply, not demand, so there have been guaranteed inflationary pressures from the beginning of the Covid response.

A consequence of the events was that during 2021, Dow Jones went from 21,500 to over 35,000, a growth by more than 60%. Other indices added a bit less but it was often around 50% (you should add some 2% from the taxed dividends in a basket of generic stocks; and you need to adjust your profit if the currency exchange rates have changed, CZK strengthened by 7% relatively to the Euro in one year, for example). However, in this explosion of the money supply, a subset of the investment did rather badly even though it was expected to do extremely well: the insane bubbles filled with a worthless gas (or vacuum?).

The Bitcoin, the prototype "investment" that has no real value by construction, started the year 2021 near $40,000 and we are near $41,000 now. During the year, there was a peak around $65,000 in April and another one $69,000 in November, with $30,000 in the middle, but the "dip" from the November 2021 peak of $69,000 to $41,000 now is approximately a 40% drop. I think that most "HODLers" actually believe that $69,000 was the all time high that will never be surpassed again. I won't dare to make the statement myself because only the human stupidity and the Universe are infinite and I am not sure about the latter; and I can understand the motion of the celestial bodies but not the human stupidity (OK, these are quotes from my pals Einstein and Newton).

A typical class of the assets that did great, and was supposed to do great, were meme stocks. AMC and Gamestop are the two best examples of this phenomenon. AMC started 2021 at $2.2 and is at $22, a rise over 900%. However, the all time high above $60 occurred in June 2021 and we've seen more than a 60% slide since that peak. Similarly, Gamestop was $20 a year ago and is $140 now, an increase by 600%. However, that price peaked in late January 2021, around $350 in the graph, and the drop in that year is therefore 60%, too. In fact, in the insane volatile trading, Gamestop has reached $480. The people who bought it there and kept it are running a 70% loss by now.

These meme stocks (note that Nokia was only a meme stock for one day because these retards actually hate that it has a real value! They only love the overvalued stocks that invite shortsellers) were sliding rather continuously since the peaks and if the long "investors" had a higher IQ, they would have figured out that these ludicrous games have peaked and will drop towards zero, and that is why the drop to zero would be extremely fast. It is very slow because the people who still hold this garbage are very stupid.

Then we have the miraculous but non-meme stocks. Cathie Wood is a notorious financially illiterate crackpot who is marketed as an investment guru by some TV channels. You can be pretty sure that pretty much everything she holds is worthless relatively to the current market price i.e. overvalued at least by an order of magnitude (because lots of braindead morons simply buy what the TV screen tells them to buy, regardless of the price). Her most famous fund is ARK Innovations, arkk ticker, and it has lost 32% in recent 6 months and 39% in recent 12 months. Think about it again: while the Dow Jones and other inclusive indices went up by 60% or so (plus a few percent in dividends), this genius' famous ARK Innovations dropped 40% in the very same period! The drop from the all time high around $156 in February 2021 is about 45%. What an investment magician! ;-)

You may look at the most important stocks included in the ARKK fund. It's led by Tesla which is traded near $1,000, some 20% below the peaks, and it's overvalued by orders of magnitude. I find it reasonable to predict that even the amount that Musk will pay on taxes for 2021 (from his sales of the massively overpriced TSLA stocks) will never be achieved as the total profit plus the loans, despite the massive subsidies combined with the institutionalized Nazi-style terror against the cars with the ICE engines. The capitalization of TSLA is over $1 trillion while the annual profits are just some $4 billion (and far from being able to repay the debt)! But Tesla is special because it's an existential leader of the worthless stocks so you may assume that lots of the morons will find their last coins to keep this most famous bubble among the "regular" stocks afloat. But yes, I do think that now it could already be a reasonably safe moment to start to massively short Tesla. Note that in recent 12 months, TSLA added some 26% which is impressive but it is hugely below the average stock.

Of course, most of the remaining stocks in ARKK did much worse.

Zoom lost 49% in 12 months and 55% in 6 months. Teladoc lost 63% in 12 months and 47% in 6 months. Roku lost 55% in 12 months and 58% in 6 months. Coinbase lost 30% since the April IPO and 6% in 6 months. Spotify lost 35%/14% in 12/6 months, Exact Sciences 47%/35%, Twilio 36%/41%, Sq Block Inc 37%/42%, and so on. Palantir (which ARK largely sold) dropped 36% in 12 months and 28% in 6 months.

Why is it so that these assets – which may be expected to do really well when people are drowning in trillions of free money, and which were often marketed as insurance against inflation (that's especially the Bitcoin's case) and we have high inflation now – did so much worse than the average stocks? Well, I think that it is because Covid-19 and (even worse) the Covid-19 response, however catastrophic, have also had a silver lining. They really brought some fresh air and suppressed some pathologies.

The shortages of materials, chips, and many other components and things have been bad and contributed to the inflation – it is mostly the part that might be transitory. People complain about these shortages because they sometimes encounter empty shelves and they have to pay higher prices when the shelves are full. However, the shortages have also showed the people that "products aren't for free" and "the human work and products are not worth zero". Sometimes they may be very precious or scarce! And we are seeing it is the case now.

There is an Alphaville reporter (formerly a writer in The Economist), Jemima Kelly. I only know the name Jemima from the 10:10 No Pressure cringeworthy fascist video. That small Jemima is a diligent pro-establishment little bitch who will bike to school (OK, I did it as well but not to reduce CO2 emissions!). On the other hand, Jemima Kelly is an attractive and intelligent blonde. And she sometimes publishes articles mocking the insanity of the cryptobubble.

The most recent article was about Cryptoland and a stupid animated ad that promoted that crypto-run island in the ocean. Her previous article was about Matt Damon's ad. That ad features some impressive visuals while it tells you "Fortune Favors the Brave" which means "You need to mindlessly throw your money into Web3 or". The most popular comment under the video says: "This brings to mind other words that have been whispered even before the Romans: 'A fool and his money are soon parted'."

OK, that ad is annoying but she also mentions an incredible blog post of a crypto crackpot named Dror Poleg, In Praise of Ponzis (hat tip: Reddit). Dror – and probably many other crypto snake oil salesmen – have apparently realized that the observation that their Bitcoin (and similar) investment asset is basically a Ponzi schemes have always been accurate. So Dror started to promote the Ponzi schemes as a great thing and a "new economic model"! He enumerates several examples of viral videos and mass psychoses that have swallowed exponentially growing armies of brainwashed morons (although the Gangnam Style is a really good video clip in its genre, I would even say that its success is largely meritocratic although the genre may be said to be degraded).

Dror's main thesis is that in the old world, there was a scarcity of many things, and it was hard to produce things. These days, it's trivial to produce and invent things and all the money must therefore go elsewhere, to the people who invent stories and ignite mass psychoses and grow seemingly infinite bubbles, pyramids, and Ponzi schemes. Useless unhinged manipulative lying pieces of šit such as himself – who will successfully encourage millions of others to become braindead obedient piles of šit as well – are destined to become the owners of almost all wealth in the world and he calls it the new economic model (he uses slightly different words). I just find it incredible that someone is willing to say such things openly. He or she is literally bragging about being a useless and deceitful piece of šit with a huge cavity inside whose survival depends on widespread people's stupidity.

OK, this creature is a typical example of the weak men from
Hard times create strong men, strong men create good times, good times create weak men, and weak men create hard times.
Some others have created good times for him, scarcity etc. went away, so the weak men like him emerged and some of them started to make lots of money by being the ultimate weak men who become the leaders of whole armies of weak men – none of them has ever done anything useful. The decade of the 2010s has made Dror's thesis really powerful: everyone was manipulated into thinking that all the old regular economy was perfectly stagnant forever and you can only make great money from meaningless stories, bubbles, and mumbo-jumbo. That is why the infinite amount of money pumped into the economy by central banks and governments didn't really ignite inflation earlier (people were brainwashed to believe that inflation became impossible forever, a self-fulfilling prophesy that worked for a decade) but it was inflating some localized, increasingly insane bubbles. Great, such an "economic model" is possible, but what he has overlooked is that this stage doesn't last forever. As the quote above (as well as the year 2021 in our real world) makes clear, this happy life dominated by the abundance of all products and materials and by the weak men's stories isn't the final stage of the history. Instead, it is just one of the four stages in a cycle that keeps on repeating! Why? Because the weak men create hard times, and that is the main reason why we got some scarcity again!

So the idea that the scarcity of almost everything is just a memory from the history textbooks and it will be so forever is just completely wrong. It had to be wrong (and the permanent character of the low inflation and low interest rates – as seen throughout the 2010s – also had to be wrong, as I predicted some five years ago, because someone was ultimately going to spend the wealth from his huge bubbles) and we see that it is wrong in the real world now. People realize that they may run out of many things, including electricity, chips, and the toilet paper, and many of them are forced to think again. That is why the most ludicrous bubbles didn't continue their mindless explosive growth in recent months and it is at least plausible that all the all time highs of the aforementioned stocks and assets will remain the all time highs forever because the bubbles will keep on deflating at a rate that may accelerate. Of course, a new era completely dominated by the weak men and insane bubbles may come sometime in the future, when the cycle gets to the same point again, but it may be many many years away.

But don't make me wrong. I don't claim that shortages are a necessary condition for a fair pricing of stocks. I do believe that even a very wealthy society with the abundance of almost everything may invest into things that have a real value (sometimes real ideas capable of producing really cool things in the future); the West has arguably lived in such a society up to 2000 or so. There is just a statistically demonstrable and logical influence of the type "abundance creates weak men", "weak men create troubles", and so on. These influences guarantee that any story of the type "history is over" is bound to be wrong.

You should better look at the actual fair or intrinsic values of each stock which is the mean value of the future expected after-tax dividends that are properly discounted, according to the moment in the future when you are expected to get them. The P/E ratio should be adequate for the given industry; the industries (or, selectively, individual companies) with a big growth and a long expected longevity of the companies may have a higher P/E. But prices with the P/E above 1,000 or "systematically infinite ratios" are not sustainable and the corresponding bubbles may keep on deflating in following months and years.

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