Deadwood, Deadends, and Deadheads

VC's mass extinction event, $10 trillion in new debt and 60 years of disappointment...

(Source: Getty Images)

Bill Bonner, reckoning today from Youghal, Ireland...

"Don't let it be forgot, that once there was a spot, for one brief shining moment, that was known as Camelot."

~ Jackie Kennedy, to Look Magazine, with a line from the musical

Whoa…that was a close call. It took us nearly 60 years of disappointment, observation and regret to get it. We didn’t want to lose it.

You don’t develop cynicism overnight. It takes business deals gone bad…political promises that we never meant to be kept…innovations and inventions that didn’t work out…public policies that were idiotic when they began, disastrous when they ended.

In today’s world, where would you be without cynicism? Doing five years in the can for visiting the Capitol building without a permit? Joining the Ukrainian army to ‘protect our democracy?’ Buying Nvidia and trusting that the Fed really does know what it is doing?

We can’t even write those words without chuckling to ourselves. It was only two years ago that the Fed forecast inflation for 2023 at 0.1%.; now they say it will be 5.6%. They were only off by 5,500%!

Stronger, richer, freer?

Last week, US government debt passed $32 trillion. And it is growing fast – up by $10 trillion over the last 4 years…and now increasing at $2.1 trillion per year.

And what do you think? Did a single penny of that debt make the US stronger, richer, freer? How young do you have to be to believe it?

As the debt rises, so do interest rates. Year over year, the feds’ interest payments are up nearly 50%. Next year, more tax money will be needed to support the debt than to support the Pentagon.

The private sector is also paying higher interest rates. Companies that took on billions of debt at 3% interest now have to refinance at 7%. And they can’t print money.

Wolf Richter:

…companies that only made it this far thanks to Easy Money are now getting hung out to dry.

Bankruptcy filings will whittle down the corporate debt overhang. Many companies will emerge from bankruptcy with less debt, and they’ll be nimbler and more able to thrive. Others will be sold off in bits and pieces, making room for appropriately managed companies not encumbered by these issues.

There is a cleansing aspect to this part of the credit cycle that needs to be allowed to do its job to get rid of the excesses and the deadwood at the expense of investors. This cleansing process that has now just started is long overdue.

Mass VC Extinction Event

And here’s Garrett Baldwin at ‘Postcards from the Florida Republic:’

Venture Capital has imploded over the last 18 months. Last week, the Wall Street Journal released a distressing analysis. They've found many startups are now unable to secure the funding they need. To say VC has been "suffering" is an understatement. Tom Loverro, a general partner at VC shop IVP, has said “The Mass Extinction Event for startups is underway.” Venture capital losses over the last two quarters are key to understanding why those top seven Nasdaq stocks are thriving. Pitchbook Data shows that the annual “internal rate of return” for the 3rd quarter of 2022 hit “negative 7%.” That’s the worst annualized return since 2009. More startups are closing shop. Others aren’t even getting off the ground as deal activity dries up.

This ‘cleansing process’ is an essential part of the win-win, free enterprise system.  The deadwood, deadends, and deadheads must be eliminated so new growth can occur.  

But guess what? America’s military/industrial/spook and elite complex is full of deadheads. And they’re not going anywhere.

Most people get ahead by peacefully exchanging goods and services. “Give and ye shall get.” It might say that somewhere in the Bible. If not, it should. That’s the way ‘gentle commerce,’ works.

But that’s not the way the military/industrial/spook/elite complex rolls. It doesn’t give; it just gets.     

Yes, there are patterns to markets and to history. Trends have lives of their own.  Inflation, for example. Once it gets underway it is hard to stop. Because rising prices cause other prices to rise…as costs go up, more money is needed.    Consumers need money to pay the bills. Corporations need more money to pay their employees. The feds need more money to keep the wheels turning and the cash flowing. Caught in the ‘inflate or die’ trap…the easiest way forward is to add more money!

Drug or alcohol addiction follows a pattern, too. It starts as fun…it becomes hard to resist…and then it ruins your life. If you’re lucky you hit some kind of ‘bottom’ and bounce off it. If not…you just keep going down.

The Kennedys thought they could change the pattern of history. They wanted to steer the government towards peace. But an empire’s stock-in-trade is violence; peace would put it out of business. It was like expecting a wolf to give up lamb chops for Lent.  

It’s alright to be a believer when you are young. But when you are our age, if you still believe that ‘the people’ run America…or that every stock market dip is a buying opportunity…or that communism or nationalism or any other kind of ‘ism’ will make us better off..

…well, you are simply a fool.

American Values, RIP

That’s why sensible societies have ‘councils of elders,’ guys and gals who’ve been around the block once or twice, not councils of adolescents.  

But we were young once, too. And last week, we were almost young again. We remembered the ‘60s…and almost forgot the cynicism it took us more than 50 years to accumulate. Revisiting those years after half a century, by reading Robert Kennedy’s memoir, “American Values,” we imagined we heard the Rolling Stones…we recalled hitchhiking across the USA, coast to coast, on Route 66….we wanted to wear our old bell-bottoms…and let our hair (missing in action in the ‘90s) grow out again.

We found ourselves with a renewed interest in politics, too…rooting for the Kennedys and longing for a New Era...

…and then, as they were killed – Jack and then Bobby…we were saddened, all over again…as if we had known them personally…

…and our cynicism came flooding back.

It wasn’t a New Era at all. It was a very old era, after all.. 

Regards,

Bill Bonner