The Madness of Markets and Has Crypto Captured the White House?
Blain’s Morning Porridge 21st Nov 2024: The Madness of Markets and Has Crypto Captured the White House?
“What value does cryptocurrency add? No one’s been able to answer that question to me.”
There are some mornings when the headlines just scream madness. So many improbable events and market moves surround us, we’re in danger of becoming desensitised to the mounting risks. It is ever thus when markets enter the irrational phase. Are we missing the fact Crypto might have captured the White House?
Will the madness ever stop? Yes. It always does. Periods of irrational exuberance are inevitably followed by introspection as lessons are learnt just in time to be forgotten as the next boom-bubble inflates.
So, am I surprised? No. I am not.
Crypto-bro Justin Sun (nope, no idea either) just paid Sotheby’s $6.2mm for a banana taped to a wall at an art auction. I wonder if he gets it. The “art-work” is one of 5 bananas taped to the wall (limited edition of 3 and 2 “artist proofs”), it’s called “Comedian”, and the actual banana taped to the wall on display… cost 35 cents from the local market earlier that morning. He is going to eat it. It comes with instructions, a roll of duct-tape and a certificate of authenticity. Mine… at 40 cents.
Indian billionaire Gautam Adani’s eponymous company has been charged with a $250mm scheme bribing Indian govt officials! (Quel surprise: “close the bar, I am shocked to discover there is gambling going on”… “Inspector, here are your winnings.”) Adani was forced to pull a new bond deal despite an order book in excess of $2 bln. Who could possibly have thought an Indian entrepreneur would be buying bureaucrats to secure solar contracts? I mean why would he need to? His rapid ascent has been closely linked to his chum Premier Narendra Modi. Gosh.. US short-seller Hindenburg Research – which called out Adani years ago – might just have a point. (If readers need reminding of the Bhattacharya Rule about investing or dealing in India, give me a shout.)
Nvidia spanks the cover off its chip revenues, up 94%, and the market tumbles because… guess what? It’s been unable to sustain 76% margins and 260% growth. The company with a market cap of $3.6 trillion produced a $20 bln profit – a 69x PE ratio. Do you think its future growth justifies that metric? Or its prospects with a sell more business model in a very competitive space that’s divided between the Anglo-World and the Sino-Co-prosperity Sphere?
Jaguar looks set to win the corporate equivalent of The Darwin Prize, awarded to firms removing themselves from the commercial gene pool. Its got rid of its “Growler” Big Cat Logo and launched a new ad campaign with nary a sight of a car. The “models” are dressed in cast offs from the 1980’s David Lynch version of Dune. Its absolutely appalling… but… Few folk care about rebrands of tired old companies, but this one is getting plenty of airtime and hours of shocked commentary. (My son is in advertising and reckons its “interesting” and thinks there is more to come. I just kind of feel sorry for my mate who recently bought a Jag sports car.)
The collapse of US retail stock, Target, on lower-than-expected sales ahead of the make-or-break holiday season, and what that tells us about US consumers? The CEO said: “Consumer budgets remain stretched, they are shopping carefully.”
Howard Lutnick wins second prize in Trumps’ cabinet as Secretary of Commerce (who knows? Tariffs and Trade apparently).
Equally “interesting” is Lutnick’s role promoting Tether. The stable coin has been described as “an unregulated, unaudited, effectively unchallenged conveyor belt of half-truths to enable global crypto” is apparently backed by $100 bln of US Treasury holdings – custody of which is managed by Lutnick’s firm, Cantor Fitzgerald. Excellent – I used to work for BGC (part of the same group) so I’m sure Howard will be able to tell us exactly how, when, what and where he keeps these securities in custody. Heaven forbid any repeat of the $61 mm settlement Tether paid for “misrepresenting” assets in 2021. The race for US treasury secretary is still all to play for. Ronald McDonald is in Mar-al-Lago this afternoon.
These, and the many, many other stories, narratives and improbably unlikely events make little or no sense to me. Doesn’t matter. The market is not smart, or clever, but is just a voting machine. It reflects what the participants believe. The current narrative is strong and screams buy. It’s caused investors to Spend, Spend, Spend like the rally to infinity is unstoppable. Smart folk are checking their prepper packs.
We’ve been here before.
I don’t want to sound like a party pooper… but just because Donald Trump has promised everyone will be better off and he will solve the current global tensions.. does not make either of these promises a nailed-on probability.
There are two factors that worry me.
The first is inflation and interest rates. I’ve been warning of stubborn, persistent inflation for years. Back in my office days, my younger colleagues at Shard all believed the energy/Ukraine inflation shock would be transitory and short-lived. I argued it was likely to become long-term and featured a large degree of clogged global supply chains and a fundamental desire by central banks to normalise interest rates. I predicted 2024 before rates would fall – I was right.
What’s the outlook for rates and inflation now? The market believes the path is downwards. The reality is Trump’s budget, spending and tax plans will negate that. Effectively, boosting the economy, and creating the kind of feel-good factor that will give Americans the confidence to start spending and therefore drive growth in the economy – which is absolutely possible and likely – comes with major inflation risks from tariffs and supply chains.
Despite the economic feel-good, rising interest rates will impact already fully-levered US consumer credit cards and other borrowings, which could be disastrous in terms of default spikes hitting banks, and then unravelling the amount of private credit that’s flowed into the economy. If banks wobble, it could trigger a liquidity scramble out of illiquid private assets – which may prove today’s equivalent of CDOs Squared in 2007.
Imagine what happens if rates finally trigger the long-feared Zombie corporate shake out of over-levered firms across the US? That will unravel the private debt monetisation of equity scam that’s been making PE owners rich and US workers unemployed.
The second thing that concerns me is the make-up of Trump’s cabinet. Nope, not in terms of the characters getting major roles they seem uniquely unqualified to fill. These smiling fools are not there to make decisions, but to support the decisions Trump and his inner core have taken. It’s that core and what they represent that is setting my spidey senses a’tingle. Trump, Vance (and his imputs from Theil, Ackman, Founders Group, et all), Musk and Lutnick are all very, very clever, but they have incredible vested interests to pursue… which brings me back to Adani..
Hindenburg alleged that Adani engaged in accounting fraud to overstate its financial health. This was enabled by the founders’ closeness to Modi.
Since Trump won the election I’ve wondered (out loud) about Musk getting to regulate self-driving autonomous driving when his business has promised… self-driving autonomous driving. Apparently, he will federalise the rules, enabling Tesla’s robotaxis, and realising the inherent value he had persuaded the market to see in that. Everyone is shocked by the naked self-interest on display – except Trump and his inner circle. They realise the market may be shocked, but will accept it if they share in upside. That is the way all autocratic empires work – enable me, and I will reward you. Its greed squared. All it needs…. Is good men to say nothing.
Trump is now fully bought into Crypto and setting it up in the family business. He is surrounded by dark crypto princes, all with a vested interest to push and deregulate crypto. Again, the naked self-interest is so shocking folk are choosing to just not see it. The financial upside is huge – its difficult not to invest. But the damage could be enormous.
The crypto-shills see Trump’s conversion and making Crypto the state religion of the USA as an enormous opportunity. All the talk of a “Bitcoin strategic reserve” and other improbable schemes reminds me of 1943. The Germans realised they were losing the war. The concocted the most brilliant scheme to turn around their fortunes by destroying Britain, by destabilising the currency and thus the economy by carpet bombing the UK with billions of forged five-pound notes.
The surest way to create real economic crisis would be crypto shills capturing the White House and pushing crypto as their dollar alternative… As the crashing chords announce the end of Season 1… what will Season 2 bring?
Out of time and back to the day job..
Bill Blain
Author of the Morning Porridge, founder of Wind Shift Capital