My colleague at BOOM Finance and Economics posts a weekly editorial and I have agreed with Admin to re-post it on TBP each week: Hat Tip: Gerry: http://boomfinanceandeconomics.com/#/
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THIS WEEK’S EDITORIAL
TAIWAN STOCKS CRASH, KOREA AND JAPAN STOCKS UNDER PRESSURE
Last week, BOOM discussed the recent warning issued by the US central bank, the Federal Reserve, that asset prices were too high. Two weeks ago, in an editorial headlined “HAVE WE RUN OUT OF BUYERS?” BOOM also alerted readers to the fact that the Russell 2000 Index and the Nasdaq Stock Index in New York had not gained any net ground since February. And BOOM has also detailed how the Plunge Protection Team has been very active recently in protecting US stocks from falling.
On Tuesday 11 May, the Taiwan stock market dropped hard and continued to drop over the first three days of trading. At the worst point on Wednesday, it was down by almost 15 % from its highs in late April. Taiwan is the unmatched leader of the global semiconductor industry with Taiwan Semiconductor Manufacturing Company (TSMC) alone accounting for more than 50% of the global market. So falls in these stocks are noteworthy if you consider that semi-conductors are used in computers, smartphones, electrical appliances, gaming hardware, and medical equipment.
Technology stocks in the US and mainland China also came under sustained selling pressure early last week. The broad China technology ETF coded CQQQ has now fallen by 30 % since mid-February. Tencent Music Entertainment has dropped by 53 % in share price since late March and Baidu has fallen by almost 49%. These are large falls and could perhaps be described as a crash.
The topical Hedge Fund ARK Innovation that tracks many US technology companies (NY Code: ARKK) continued to fall and was down mid-week almost 40 % since its recent highest point achieved in mid-February.
The fragility continued in almost all the major stock markets around the globe. On Friday, there was some rebound with buyers bidding prices up. But the bounce was not terribly convincing.
The question “HAVE WE RUN OUT OF BUYERS?” continues to be asked in regard to stocks but some observers are now asking “WILL WE RUN OUT OF SELLERS?”. Others are asking ‘HOW LOW CAN IT GO?” and wondering if all the non-technology sectors will join in and start falling.
BOOM’s two major indicators that track the Chinese economy are still in strong uptrend so that bodes well for the immediate future of China, the globe’s leading economic engine. Total Social Financing in China fell in April but not significantly. Some reports concerning this have been exaggerated.
On 21st February, BOOM wrote — “…… in regard to the prices of Bitcoin and Tesla, BOOM suspects that their recent rises in price will soon be over and price declines should begin. And the FANGS plus maybe Apple could also weaken soon. This should allow other stock sectors in the US with more fundamental value to shine as investors rotate from fashionable sectors to other less fashionable ones.”
Since that date, Bitcoin has struggled to rise against the US Dollar. It has moved sideways in a trading range. However, it is now down 15 % in that time frame. The Grayscale Bitcoin Trust traded OTC has fallen by 35 %.
Tesla shares have fallen by about 37 % since late January. Apple and Netflix have fallen about 16 %. But it has not all been one way traffic. Facebook has risen by 10% and Google has risen by around 20 % in the same time frame.
BOOM sees all of these declines in technology stocks as healthy in the long run. Asset prices have been “too high” according to the US central bank so such corrections are to be expected.
MORE ON MONEY
This leads us to two key questions – “What is Money”? and “What is Wealth?”. Asset prices trap money out of circulation and embody wealth. These are complex phenomena to understand. Here is a short explanation.
Money is a contract of debt — a credit contract. These contracts exist in any primitive tribe. “I’ll help build your barn today if you help me harvest my corn crop next month”. When such contracts become many and are generally recognized (accepted) in a social setting, the primitive society will inevitably move towards the invention of a generally accepted, convenient currency to assist in payment settlements. A currency is money in circulation such as salt or sea shells or (later) metal coins. When metal becomes inconvenient, cloth or paper comes next, then ledgers are invented to store the promises. Tally sticks are rudimentary ledgers. When computers arrived in the 1960’s, digital ledgers were invented. And since then almost all our money has been in digital form.
If it is kept in storage and is not circulating, a currency becomes a store of potential spending power (wealth). If a society’s money is linked to Gold (or Silver), the price of the precious metal must be fixed against the prevailing currency. Then the only way to expand the money supply is via discovery (mining) or theft in imperialist wars of conquest, murder and mayhem. If we ever return to a Gold backed currency, a very clever committee of economists will have to set the price of Gold from time to time. Very clever economists are extremely rare to find, let alone a committee of many (!). Theft, murder and mayhem will return as certainly as night follows day.
Credit contracts always have a term (a period of existence) thus credit money must always have a term. Credit money is born as a contract, exists in circulation (as currency) or is fixed for a period of time (as wealth) but then it dies when the contract is completed. This is why Bitcoin or Gold can never be money — because they are not created as contracts and are limited in volume. Bitcoin cannot be destroyed, Gold can never be destroyed, and both are limited in supply thus neither can ever be money or accepted as a currency. They can only be assets — either digital assets or commodity assets. Even sovereign money (cash) is a debt from the sovereign to its citizens. That debt can be (theoretically) recalled at any time.
Credit money (created as a bank loan) is interest bearing money. Cash is not. Our money now is 98% credit money and 2 % sovereign (cash). A 100 % sovereign money system is called Communism where there are no private banks and thus no creation of interest bearing money. That is what happened in the USSR. China is a mixed money system where the private credit money is private until it is public (you get the drift). We need more sovereign money (created as non-interest bearing cash) to provide balance to the credit money in existence. We should strive for a 50:50 system. Banning credit money is called communism — not a good idea (eventually everybody pretends to work and the government pretends to pay them with something of “value” which they pretend is a generally accepted currency).
The Debt Jubilee referred to in last week’s BOOM editorial concerns the possible forgiveness of debts created as Reserve Assets between the commercial banks, the central bank and the government. Reserve Assets are special assets held by banks that cannot be used to create credit contracts to banking clients. BOOM has described previously how such reserve assets combined with debt jubilees could be used to create fresh new money that is effectively a form of non-interest bearing electronic cash and which the government could spend into the real economy.
One more thing of some importance; money can never be made “sound” by linking it to an asset such as gold. Its value must always be derived from the quality of the trust embodied in the contracts of promise. And most often, that trust must be enforced because many human beings tend to be untrustworthy if given the chance. History reveals that in all its so-called “glory”. Money and wealth are often the obsession of human beings but few make the effort to understand them.
GOA HANDS OUT IVERMECTIN
The State of Goa in India is handing out the drug Ivermectin to all citizens above the age of 18 years. This is a preventative treatment aimed at slowing the effects of Covid 19. Surely all nations should consider this strategy in future for attenuation of any viral epidemic?
Health Minister Vishwajit Rane said “There have been studies in journals of therapeutics, there have been studies in the US, UK, Japan, Germany that when this (Ivermectin) is administered in advance, when the entire population is administered this treatment, their mortality rate fell and effects of Covid-19 on that individual were also less (sic). All our doctors and experts, the chief minister have unanimously decided to go ahead with this….We should go ahead and give it to the population. It’s a must.”
Goa and Covid 19: https://indianexpress.com/article/india/goa-prescribes-ivermectin-for-all-above-18-irrespective-of-symptoms-7310158/
COVID 19 GLOBAL CASES AND DEATH NUMBERS FALLING
The number of New Cases of Covid 19 globally is falling. The number of Deaths attributed to Covid 19 globally is also falling. Check these numbers for yourself at the Worldometer’s website.
The mainstream media will almost certainly keep this information from you. Why? Because they dislike facts, especially any facts that ruin their fear campaigns and their narratives. It is slowly becoming clear to anyone who can think that those mainstream narratives are not the result of any intense research.
Sadly, the western world no longer has any large mainstream media outlets that vigorously seek to find truth by looking at facts in an unbiased manner. They certainly do not seek to conduct any balanced debate about topical issues. It seems that they have become nothing more than propaganda outlets for secret, hidden forces that wish to manipulate the public.
Worldometers — https://www.worldometers.info/coronavirus/
In economics things work until they don’t. Until next week -Make your own conclusions, do your own research. BOOM does not offer investment advice.
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I think cryptos are going to be around for awhile and gold & silver are going to continue to be bought. Precious metals spot prices don’t match reality and gives people a discount on buying physical coins and bullion. A monetary system based on debt is only beneficial to those lending the money. Neither cryptos or precious metals are debt based currency. As long as the government continues to print willy-nilly people are going to hold less dollars.
…and those who know how to use debt to their advantage.
A Bitcoin cannot be destroyed? I thought it only existed in bits and bytes on a computer? What happens to bitcoin when there is no more electricity?
I can hold gold, feel it’s density and marvel at its beauty. Bitcoin has no density nor beauty.
The same thing that’ll happen to the US dollar and stock market. Most banking and investing is done online now. The same risk that plagues cryptos also affect fiat money.
But not PMs.
The real question is what will happen to Bitcoin/cryptos when Uncle Sam rolls out his FedCoin? What will be the real future of non-central bank issued electronic fiat?
Competition will not be tolerated anymore than government issuing their own money is tolerated. Any country hosting non compliant cryptos will be Arab Springed. Any domestic cryptos will be co opted or taxed and regulated into obscurity. The NWO controls all the infrastructure on earth and in the heavens.
If you like your wife and kids you can keep your wife and kids. IF….
Do you really think we’ll ever be without electricity? Other than occasional outages?
Yes. I think there is a very high likelihood of worldwide EMP attacks on the grid. Bits and bytes disappear when exposed to EMP.
I agree with TN, emp scares me. Go Read the Fortschen books starting with “1 Second After”.
Yes Doc, I referenced this in my book – a really good read.
Credit money (created as a bank loan) is destroyed as the bank loan is paid back. Gold backed money requires a committee of very clever economists to set the price of gold. Very clever economists are extremely hard to find (possibly impossible), let alone a committee of many (!).
I had an econ prof back in the 70’s who told us he had predicted 7 of the last 2 recessions and then laughed at the old economist joke.
Gerry and I disagree on gold TNP. I agree that a currency based on gold is unmanageable in a modern economy for the reasons that Gerry lays out. However, I too am a gold bug and cannot deny its beauty and safety. 🙂 For me it’s an emotional thing without logic or rationale but after all we are feeling creatures in the final analysis I guess.
https://billmuehlenberg.com/category/health-and-medical-issues/coronavirus/
Good stuff Peter. Best investments now are Beans, Bullets, Bullion and, a Bible.
Bourbon?
I guess so…bad Doctor for missing that 😉
It happens to be my drink of choice, so when someone brings up a list of items beginning with “b”, I always assume it will be there.
You can now go pour yourself 2 or 3 fingers of your choice and enjoy the sunset over the mountains.
Along with a good cigar…just finished dinner and am headed there now.
The numbers are FAKE!!! Always have been. High, low, in between …. fake.
There will be more “surges”. Masks aren’t done, in spite of what you may see, read, & hear. They’re not done until the vaccine passport is implemented for the majority of people in the majority of places for the majority of things.
TPTB are NOT going to be giving up on this.
Minute 4:20 to 7 describes where we’re headed. Competition will be co opted or regulated and taxed into obscurity. Memes are being lab tested via rumors and utterances from DC and EU.
His predictive track record has proven correct 99.5% of the time the last 5 -6 years I have followed him.
One of the most successful, bold, outspoken and fearless traders out there.
Gives everything he does away for free.
I’m not into trading or cryptos (macro PM guy/prepper – been right since 1999) but he and I agree on just about everything else economically…and his insights twice a day have been tremendously spot on all these years.
“Tesla shares have fallen by about 37 % since late January. ” No shit. Buy the fucking dip. It’s only down with the broader market, and unlike most stocks, you’ve got a monster growth company behind you. Buy dogecoin. You’re buying air. But it’s Elon’s toy, and he can prop up the market with his lunch money. He can say what he wants about it on Twitter (and he is), it’s not a security, the SEC can do nothing.