Wall Street Delusionals

A look at the dreamers and schemers, the lunatics and half-wits...

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

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The ‘Bored Ape Yacht Club’ non-fungible token was worth $300,000 if it was worth a penny. We had our doubts if it was worth either.  

But ‘maxnaut,’ the owner, was sadly disappointed. He left a zero off the offer price when he put it up for sale on the NFT market site OpenSea and a trading bot, trained to profit from human error, snatched it up for $3,000.

Poor maxnaut. What can we do to help him? And what about all the others, whose dreams of avarice are about to be interrupted by a new Fed tightening cycle?

By every known rule of prudent central banking, the Fed must now do an about face. Instead of fighting a weak economy, caused by the feds when they locked down important businesses and pretended to replace real output with fake money, the Fed now needs to fight the inflation it caused by ‘printing’ far too much of it.

What will happen to the dreamers and schemers… and to all the lunatics and half-wits throughout the country made crazy by federal monetary policy? 

What about all the kids in their parents’ basements betting on meme stocks? 

What will become of the ‘art’ that is invisible… businesses that don’t exist… and corporations that can’t plausibly repay their debt?  

And what about the householders who’ve ‘taken out’ too much equity from their homes?  

What about Joe Biden and Donald Trump… and members of Congress - all of them counting on spending money that hasn’t even been ‘printed’ yet? 

Paper Money Padding

Yes, today, we take a break from our usual cynicism. In keeping with the festive season, Saturnalia, we write charitably, generously… and insincerely… on behalf of those whom our Big Nurse Fed is looking out for.

What will happen to those who believed the gaudy claims of the tech futurists?

One says a new “disruptive” tech will bring 10,000% gains. 

Another says a pharma breakthrough will allow children born today to live to be 200 years old. 

Still another claims you can double your money overnight.

Is there a special place for Wall Street delusionals? An asylum with walls padded with paper money… 24-hour trading… and a TV tuned in to Congressional hearings? 

Cathie Wood, for example. Like a deranged cat in a sycamore tree, the poor woman may need a rescue. She is a danger to herself and to investors. Recall that she’s been in the pie-in-the-sky tech world for a long time. She co-founded Tupelo Capital in 1998. 

Two years later it went belly up… with an 84% loss in nine months.

Not even pausing to catch her breath, Ms. Wood then got a job managing a fund at Alliance Bernstein. Her fund went down 46% in 2008. So she moved on to set up ARK Invest.

Where did she get the money? Who would invest with a two-time loser? Well, the capital came from Bill Hwang, another player who was in the news lately, after the Wall Street Journal reported that his Archegos Capital lost $20 billion in 10 days.  

Hwang, too, may need his meds changed. His Tiger Asia Management worked out a $44 million settlement after the SEC charged him with insider trading.

No Guarantees

That was in 2012. Two years later, he was banned from trading in Hong Kong. In that same year, he staked Cathie Wood’s new ARK Invest firm.

And now look at what has happened. Ms. Wood is down 40% since the peak in February – even before the Fed gets anywhere near a positive number for its key lending rate. And she’d be down a lot more, but Tesla is a big part of the fund’s holdings, and it has yet to crash.

Past performance is no guarantee of future results, as the SEC put it. And – Thank God – losing money is  no sin… and no shame, either, especially in the bubble world. What marks Ms. Wood for confinement is not her track record of occasionally losing a lot of money for investors over a quarter of a century. It’s the fact that she has lost her mind. Here’s the latest from ARK:

According to our research, emerging innovation platforms will transform our lives and the global economy radically, scaling their equity market capitalizations potentially from roughly $14 trillion today to more than $200 trillion in 2030. ARK has identified five innovation platforms––artificial intelligence, DNA sequencing, robotics, energy storage, and blockchain technology––that will be the nucleus of change and are likely to act in concert, each feeding the others.

Spurred by the coronavirus crisis, these platforms converged to solve many problems during the last 18 months. 

Oh yeah? What problem did they solve? We can’t think of a single one. 

Did they make germs go away? Did they spare you the trouble of flossing your teeth or being nice to your mother-in-law? Do we no longer need to work? Or fear death?

Yes, techs make technical advances. But in order to be worth real money, they need to provide real goods and services that real people… with real spending power… will pay for. 

Where will those real people come from? Where will their money come from?

With luck, US GDP will total about $25 trillion in 2030 (assuming 2% annual growth and no recessions). If Ms. Wood were right, that would make these tech innovators’ alone worth eight times GDP.

That will not happen. Even at today’s bubble high the stock market is only worth two times GDP… and it’s an all-time record. It is far more likely that the ARK sinks in the next correction… than a collection of tech stock trades at 800% of GDP.

Of course, we don’t know the future. And it always comes with surprises. In any case, we owe a debt of gratitude to Ms. Wood, Mr. Hwang and many others. In the old days, people used to go to the insane asylum for entertainment. Now, the nuts are on display 24/7. 

So, we’re taking up a collection in the office to help them,  just in case.

Regards,

Bill Bonner