Hi everyone—I’m so glad to have you here. What a week.

This past week was a heavy dose of reality for people who were under the mistaken assumption that their wealth was on firm footing and things were Fine™. The spell is beginning to break.

If you’re a stock person you’ll point to crypto and marvel at the fall. If you’re a real estate person you’ll point and laugh at tech stocks. Everyone is a genius and The Other Guy is a dumb-dumb stupidhead.

The reality is that right now stocks, startup equity, real estate, crypto, and Bitcoin are all bound up together to form one colossal mutant stitched together with sutures known as leverage. Loans + debt.

Marty Bent did a very great rundown of this tangly situation but I will summarize here for you fine readers:

• Governments shut down the global economy in 2020, grinding supply chains to a halt

• The Fed + Treasury turned on the money printers to inflate the money supply, and then sent it directly to people’s bank accounts so folks could spend money even though the economy was shut down

• They then lowered interest rates so people could get access to loans, spurring more people to buy houses after leaving cities due to lockdowns and a newfound appreciation for Zoom calls

• The lockdown-induced supply chain disruption led to fewer goods—including food, fuel, and building materials—coming to market (i.e. low supply)

• Low supply + high demand leads to higher prices. Econ 101.

• But with an economy under lockdown, excess disposable income couldn’t be spent as it otherwise would, so people put it into stocks & crypto & NFTs instead. This caused markets to rise (this is where the price increases went first after the money supply was inflated)

• So at this point we have people thinking they’re rich on paper (their real estate is up, the stock market up). Some people even used their stock portfolios—i.e. equity in publicly traded companies—as collateral for home loans.

• After the Fed said inflation wouldn’t be a problem, was actually good, only transitory, and then finally admitting it was running hot after all and a problem, it was far too late. But that hasn’t stopped them from raising interest rates in an attempt to now reduce demand (i.e. incentivize people to spend less), which is the opposite of what they were trying to do at the beginning when they gave people money

• When they increased the Federal funds rate (the rate that banks lend to one another overnight) it means they need to cover the cost of those interest rates over time. So they go to the products they offer retail investors (e.g. mortgages) and they adjust those rates to help them cover the cost of the overnight bank reserves. So now mortgage rates are up, and if you had an adjustable rate mortgage your monthly payments are higher than they were before

• With cost of living expenses rising (not just mortgage payments, but things like gas and food) people need to draw up cash to pay for things, so the first thing they’re likely to sell are the stocks & crypto & NFTs they bought. So markets start falling. And when markets fall it precipitates more fear, and therefore more selling.

• But if you were using that portfolio as collateral for your home loan then the housing market starts collapsing too, and for some people the banks take their home because the collateral is insufficient.

In the end, people come to the harsh realization that all of it was a mirage. They never really had all of that wealth. Tech giants like Apple, Microsoft, Alphabet, and Amazon lost more than $1 trillion in value in just a few trading days. The net worth of Brian Armstrong, CEO of crypto exchange Coinbase, has dropped 84%.

These are the consequences of thinking you can shut down the global economy with impunity. No one in power ran a cost benefit analysis. They just panicked. Either that or they knew this would all happen and it’s in service of a larger goal that you and I are not privy to, but I will leave that to the conspiracy theorists (of which there are many).

People sell what they can to cover their losses, and this is why investing within your means and with a long time horizon is important. Sadly, most people are not investors they are traders, trading this thing for that on a short timeframe, flipping their way to quick profits and borrowing money to pour fuel on the fire at no point noticing that they are playing with fire.

People are living beyond their means, taking out loans to buy things they can’t otherwise afford. That’s why easy money is so pernicious.

How bad is it? Well, so far it’s been the 2nd worst start to a year for the S&P 500 in history: -17.4% in the first 90 trading days. (It has also been the worst year in history so far for the US bond market).

Have a look at this chart for some context:

2022 is in the company of 1932 (Great Depression), 1970 (Vietnam War), 1939 (Start of WWII), and 1941 (Pearl Harbor/US enters WWII).

And amidst all the carnage our leaders are gaslighting us, trying to insist everything is actually great, the economy is strong, and everything they’re doing is a good idea.

The governor of California proposed an $18,100,000,000 “Inflation Relief Package” that will involve sending people “inflation relief checks.”

And when newspapers ask ordinary people what they think the cause of inflation is, “monetary policy” isn’t even offered as an option. This is the misdirection and hocus pocus in action ✨:

3 major oil lease sales were cancelled by the Biden administration amidst a global fuel crisis and rising gas costs and they’re still trying to pin rising oil and natural gas prices on Putin and war. At no point has any branch of the government nor their financier, the Federal Reserve, taken responsibility or accepted blame for any negative consequences that resulted from their policy decisions. (Don’t forget we’ve had two presidents in that time—one red and one blue.)

They want to control inflation but also print more money to send $40B to Ukraine which makes no sense, until you understand that war has been and continues to be the justification needed to print money in the first place. It’s no coincidence that the U.S. left behind more than $7 billion worth of weapons and equipment in Afghanistan last year instead of treating them as valuable and worth using elsewhere. These weapons are disposable just like the money printed to buy them.

The way they do this is by fudging the numbers. This week’s CPI report included a methodology change to new vehicle prices, switching to an alternative series based on JD Power data. Surprised to learn that the old calculation would have shown higher inflation? I hope not.

The whole thing is another fugazi—a shoddily constructed illusion. It’s all fake.

An economy is a complex, dynamic system like the weather or an ecosystem or a living creature and trying to control it like you’re changing the radio station is an absurd premise. It’s made excessively absurd when you’re literally just changing all the variables yourself along the way in order to say the thing you want to say.

Eric Weinstein @EricRWeinstein

This is what meteorologists condition you to think of as “reporting the weather”: Contour lines. . Dynamic fronts. Probability distributions for rain. Vector fields for wind. Scalar fields of pressure & temperature By contrast, Economists tell us your CPI is 8.3%. Discuss.

May 11th 2022

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Bitcoin, too, has been swirling along in the tumult, and it’s weathered the storm well. Below is what bitcoin has been doing for some perspective. That last little red bar is when a bunch of other garbage coins and leverage schemes got completely wiped out this week:

Since Microstrategy announced its first bitcoin purchase on August 11, 2020, bitcoin has appreciated 149%, outperforming Silver (-17%), Gold (-9%) Nasdaq (5%), S&P (18%), CPI (11.2%), M2 (19%), US homes (28%), & PPI (33%).

What you’ll read in corporate media clickbait industry headlines is that “cryptocurrencies such as Bitcoin are melting down” (“Here’s 4 Things To Know™”)

But I suppose folks in the ad sales industry needs to eat too. If it bleeds, it leads, and anything more than a day old is worthless. I wonder what this type of thinking does to an industry and a society over time? 🤔

No matter, this has been the way it goes for as long as there have been newspapers and expenses that need paying for. Best not to blame capriciously and focus instead on seeing clearly.

Do not mistake the fata morgana on the horizon as an oasis of stability and financial solidity. It is actually a shimmery lie—a fugazi—projected to convince you that you can’t trust your senses and should instead trust people in government instead.

Don’t fall for it, or you’ll fall with it.

Until next time 🤙,

Mark

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