Walking in the air… … is dangerous. At least when it comes to investing, we prefer our feet on the ground
Since the Money Madness began in earnest in March 2020, consumer spending – as measured by real retail sales – has gone up 13.5%. That’s due to the feds’ stimulus cheques, non-repayable loans and other claptrap. According to Say’s Law, real demand (purchasing power) comes from output. In other words, you gotta have something to spend. And you get it by having something to sell (labour, product, etc). In the same period, real output (real personal income less transfer payments) went up, too – but by less than 1%. So demand (based on phoney moneyprinting, not output) rose more than 13 times faster than supply.
What would you expect to happen under these circumstances? Prices should rise, which is exactly what happened. Last month, the median price of a new house climbed to more than $400,000 – a 27% rise over two years ago. Even by the Federal Reserve’s own inflation yardstick, the “PCE deflator” – a measure of inflation based on changes in personal consumption – from October 2020 to October 2021, price hikes averaged more than
5%. This is the highest reading in 31 years – and more than two and a half times the Fed’s own target.
This is very gratifying and reassuring to us. Night still follows day. Gravity still holds everything down. And the law of supply and demand still works. Not equal to supply and demand, or Say’s Law, but still on the books, is Bonner’s Law and its corollary. Bonner’s Law says that “when the money goes, everything goes”. The corollary tells us that things in the financial world, especially, get a little funky. So, when the Fed added another $5trn (no point in trying to be precise, we’re talking trillions here), it was bound to set off some weird stuff.
We record such stuff here on the back page regularly, but the latest to catch our eye is the cryptocurrency Snowdog, after the theme of the Dogecoin, which in itself began life as a joke. The “greater fool” approach to investing rests upon the assumption that there is always someone dumber than you, ready to buy your assets for more than you paid. Snowdog wasn’t taking any chances. If there were greater fools out there, it would sniff them out.
So the creators put out the word that they were going to spend $40m buying the coins back in eight days. A “game theory experiment”, they called it. The Snowdog token rose to be worth more than $6,000. Then, the insiders quickly exchanged their holdings for other cryptos, taking out some $10m worth in a matter of hours. This “rug pull” sent the poor Snowdog down 99%. This must have come as a shock to the buyers. The cute little puppy didn’t come when they called it. Instead, it pooped on the carpet and took off running! How could it?! But it is a relief to us. God is in His heaven. The Queen is on her throne. And investors didn’t get what they expected, but what they deserved.
“Bonner’s Law is that, when the money goes, everything goes”