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When Luna Met Terra
The worst market start since 1932 meets the great Crypto Crash of 2022...
(Source: Getty Images)
Bill Bonner, reckoning today from Youghal, Ireland...
Yesterday, we focused on incompetence at the Fed. Ms. Loretta Mester, for example, has been carefully cloistered in the Fed convent since 1985. There, protected from real life, she has spent her whole career.
And now, she is called upon to protect the dollar, the world’s reserve currency, and the whole global economy that depends on it. All wet and wobbly, innocent and ignorant, like a freshly dropped calf, she rises to the challenge:
“Okay… we’ll… like…try a 0.5% rate increase,” she says [this is not a direct quote], “and… like… see what happens?”
Today, we expand our coverage of the deficiency and ineptitude of the whole caste of nitwits and grifters who rule us. We take up the issue partly for amusement… and partly because it connects some important dots.
Why do our functionaries seem like such morons; why are their policies so obviously dumb? Why do both political parties go along with the worst policies?
Why – when we should be getting richer than ever – are we actually getting poorer?
And how have our elite institutions – the Fed, the Supreme Court, the military – been enfeebled and weaponized by politics? (We recall, for example, when Supreme Court justices were selected for their constitutional knowledge and almost unanimously approved by the Senate. Now, they are chosen on the basis of race, gender and/or ideology… and only approved after a fierce political battle.)
Most important, we will see more clearly why – when push comes to shove – the Fed will roll over.
Crapola to Crapola
Societies always develop their own elites… their aristocracies… their nomenklatura.
And these elites then tend to become over-powerful, over-confident, over-corrupt… over-compensated… and over-protected. They gradually get cut off from ‘the people’ they govern, with pensions and perks far beyond those of ordinary citizens… and they become more and more heavy handed in their efforts to hold onto power.
But for all their power and supposed expertise, there is much the rulers cannot rule. They cannot improve the sweetness of a kiss, for example… nor prevent a bubble from finding its pin.
Dust to dust… ashes to ashes… and crapola back to crapola, whence it came. Despite the most monumental, reckless and determined effort on the part of the Fed… the markets are losing air.
The Russell 2000 Small Cap index and the Nasdaq have both given up all their 2021 gains.
The S&P 500 is off to the worst start of any year since 1932.
From their highs in 2021, QuantumScape is down 85%. Workhorse Group is down 87%. Peloton, MINUS 91%. Pinterest off 67%. Twilio down 70%.
Rivian is down 86% from its high. Nikola, - 93%. The electric vehicle may be the future. But, the future has stalled. Lucid is down 72%... and even Tesla has lost 36% of its peak value.
And crypto currency may be the money of the future, too. But in the here and now, people want dollars.
‘When the money goes, everything goes,’ is a dictum, here at the Bonner Private Research headquarters. And one of the first things that went, when the Fed began diddling the economy, was common sense. And not just among public employees. Common sense was suffocated by claptrap and gobbledygook everywhere.
Back Down to Earth
In the crypto world, for example, a fellow named Do Kwon, otherwise known as the “King of the Lunatics,” created a remarkable new form of money. It was actually two made-up ‘currencies’… one with its feet on the ground, Terra, promising to be ‘stable’ and linked to the dollar by the second one, Luna, which was somewhere lost in space. The idea was self-evidently absurd. Luna would trade on the open market, as all cryptos do. And then, to make sure your Terra was always worth a dollar, you could exchange it for a dollar’s worth of Luna. And vice versa.
But wait… what made Luna worth a dollar… or anything at all?
That was the catch. Nothing guaranteed that Luna would have any value. If Luna fell in value, Mr. Do Kwon assured buyers that they would get more of them. He could create as many Lunas as needed, he pointed out… as if he could turn a zero into a positive number simply by adding more zeros.
But increasing the quantity of nothing did not turn it into something. And yesterday, both the Terra and the Luna were headed into the void.
Mr. Do Kwon is not going down without a fight, however. He tweeted:
The Terra ecosystem is one of the most vibrant in the crypto industry, with hundreds of passionate teams building category defining applications within. As long as these builders, TFL among them, continue to build - we will come out of this together.
Terra’s focus has always oriented itself around a long-term time horizon, and another setback this May, similar to last year, will not deter the #LUNAtics. Short-term stumbles do not define what you can accomplish.
It’s how you respond that matters.
Terra’s return to form will be a sight to behold.
But at this stage, Terra’s holders might not want more BS about the ecosystem or the passionate teams that are working there. The sight they’d like to behold is the return of their money.
More to come…
Joel’s Note: If recent price action in the market has got you reaching for the Dramamine, consider that what investors are only beginning to digest is virtually unprecedented. As BPR Investment Director, Tom Dyson, put it in his note to subscribers yesterday…
“We’re in the final stage of the greatest financial experiment in human history. The managers of the system created an epic credit bubble. Now they’ve popped it. I think the stock market is warning us of very hard times to come. This is just the beginning.
What’s got the market all choked up? It’s not “supply chain issues” or “Putinflation” or “technical factors,” as Mr. Biden assured us after the “surprise” drop in Q1 GDP. It’s the debt, stoopid… and the tsunami of paper money smothering the global economy. Continued Tom…
“The total global pile of debt is $303 trillion. Two years ago, it was $255 trillion. That means that since the beginning of the pandemic, the world has added $48 trillion in debt.
“A trillion is a thousand billion. It’s an enormous number. Interest must be paid on this debt. And that interest rate is rising quickly…
“Every 1% increase in the interest rate adds $3 trillion to the cost of servicing the world's debt pile. The world economy only has a GDP of $85 trillion. So that’s a big chunk of GDP getting spent on servicing debt.”
To help guide subscribers through these turbulent times, Tom is recommending they set the dial to “Maximum Safety Mode” - that means, lots of gold, silver, cash and scarce durables… and only a select few “tactical trades” in stocks, as outlined in detail in his research.
If you’re looking for a lifeboat strategy to ride out the storm, you might like to consider joining Bonner Private Research. This is exactly what Bill, Tom and Dan have been warning about… and what they’ve spent the past few years preparing for. If ever there was a time to get on board, now’s that time…
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