Vladiator Goes to Ukraine

Exercises in military misadventures, plus the Fed's rate hikes in doubt, the plight of post-perestroika petro-powerbrokers and plenty more...

(Source: Getty Images)

Joel Bowman, reckoning today from Buenos Aires, Argentina...

When it comes to being into politics, we’re mostly into being out of them. That goes double for international politics, that notorious cesspool of misinformation, propaganda and chest-thumping nationalism. 

It’s tense enough negotiating the terms of a 7yr old’s birthday party (as we are currently discovering), much less drawing and redrawing political boundaries between nations - and often through communities - half a world away. 

So we leave that to the pros - the grifters, the contractors, the war hawks and the lobbyists - assuming they will make whatever scenario they encounter that much worse though their efforts. 

Geopolitics aside, then, we note in passing that it was a fantastic week not to be a Russian billionaire. From Bloomberg:

Russia's billionaires lost $39 billion in less than 24 hours after the invasion triggered a plunge in equities. The country's benchmark stock index closed 33% lower Thursday, the first time since 1987's Black Monday crash that a decline of that magnitude hit a market worth more than $50 billion. Lukoil CEO Vagit Alekperov saw the sharpest fall, with his net worth slashed by almost a third to $13 billion, according to the Bloomberg Billionaires Index.

Whoa! That’s a lot of beluga caviar, sable coats and clear platform heels. We imagine the crestfallen oligarchs... the sorry looks on their faces. “Hey!” they must have exclaimed, “What gives? We stole that money fair and square!”

Of course, you didn’t need to be a post-perestroika petro-powerbroker to feel the pain in the markets this week. From Monday through Thursday, the Dow sold off some 2,000 points, wiping out billions of dollars in paper wealth. Then came Friday, when markets turned on rumors the Fed had found a reason to delay cancel its expected rate hikes. 

Readers of these pages will recall that the Fed is caught in what Bill Bonner has described as an “inflate or die” trap: “It either lets inflation rip – with more money printing and ultra-low interest rates – or it crashes the economy with higher rates and QT (quantitative tightening).”

Continued Bill, in yesterday’s missive: “Most people – about 90% of the population – gain nothing from inflation. But a few people – the 10% at the top – need more money printing to fund the US budget, Wall Street, the military and their own bubble-era gains. These people, the few, are those who control Congress… and the Fed.”  

The Fed knows it ought to pull up its britches and hike rates… but it is desperate for an excuse to keep the money flowing. And this week, Mr. Putin handed it that very excuse. 

Of course, the Vladiator’s misadventures in Ukraine are bound to put a squeeze on energy supplies, exacerbating already tight markets. And as the Feds continue flooding the world with cheap dollars, one expects “transitory” inflation to stick around for a while yet...

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Meanwhile, our investment director, Tom Dyson, issued an urgent warning to BPR subscribers earlier in the week.

It’s important enough to quote here at length. Writes Tom...

We are in the final stages of the greatest speculative bubble of all time, in all things. If the price action in the market is any indicator (along with liquidity) this bubble has now popped and evidence is mounting of an impending financial catastrophe, including a deep recession, a bear market in the major stock market averages, and ultimately, a soft default on the global stock of government debt. 

That’s my working hypothesis, at least. 

Our investment strategy can be summed up in three words: “maximum safety mode.”

My conclusions are based on an analysis of the debt cycle, crowd psychology and valuations like Warren Buffet’s Market capitalization-to-GDP ratio. That ratio ‘peaked’ in November of last year at over 201% of GDP. The 10% correction in the S&P 500 since then has brought the ratio down to 188%.

But the mean value of the ratio, going back to 1971, is 86%. Stocks have already lost $4.6 trillion in value since the Wilshire 5,000 (the broadest measure of US publicly listed stocks) hit $49.1 trillion on January 3rd. I want you to read the next sentence very carefully…

Stocks would lose approximately $23.86 trillion in value if the Wilshire 5,000 were to revert back to its mean average value of 86% of GDP. That’s based on a fourth quarter GDP figure of $23.99 trillion, according to the Bureau of Economic Analysis. Is a $20 trillion destruction of market value really possible? 

This is what you’d call ‘The Great Revaluation.’ It’s what we’re positioned for with our strategy. And remember, stock markets tend to over-correct. This is why my colleague Bill Bonner thinks stock market losses will be closer to $30 trillion before the market truly bottoms.

As mentioned in this space before, Tom and Dan are busy researching the very best ways to not only preserve your wealth through this tumultuous cycle, but also to identify the kinds of opportunities that market aberrations like this historically yield. 

In addition to holding gold and silver, Tom is hunting through “Old Economy” companies... that is, steady outfits that deliver real world goods and services to real people... stalwart companies that were often ignored during the crack-up boom of the past decade, and hence present attractive value profiles. 

If you’d like to gain access to all Tom and Dan’s research, including monthly issues and twice-weekly (Wednesday and Friday) updates, plus private Zoom calls, podcasts and plenty more, find a subscription that’s right for you, here...

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And now for Bill Bonner’s missives from the past week...

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And, finally...

Don’t forget to tune in tomorrow for your regular Sunday Sesh, when we’ll revisit our own journey (with wifey and then-3yr old daughter) to a disputed separatist region along the Ukrainian border, where we were greeted with hammers... sickles... and a multi-mile convoy of Russian “peacekeeping” tanks…

Plus, look out for your weekly Fatal Conceits podcast, which you’ll find in tomorrow’s Sesh. This week we sat down with serial start-up investor, crypto enthusiast and parallel economy expert, Adam Sharp. 

Adam has invested in over 125 startups in the past decade alone, a dozen of which have gone on to become unicorn companies (a start-up valued at over $1 billion). Over the course of an hour-long discussion, he offered deep insights into censorship - both of the First and Fourth Amendment variety - and the unique ways the market is developing novel workarounds in the financial - banking and payment processing - space and via social media platforms.

A contributing editor to HIVE Blockchain Technologies, Adam also lends some insight into the fascinating world of large-scale crypto mining, where companies are investing billions to (for instance) build out campuses alongside hydroelectric facilities in Canada, Sweden and Iceland. It’s a brave new world, indeed. 

We’ll have all that and plenty more, in tomorrow’s Sunday Sesh. 

Until then...

Cheers,

Joel Bowman