Tuesday, April 20, 2021

Need $$$? Contact: DH5yaiegoZN36fDVciNyRueRGvGLRmr7L

By David Stockman

 If you are a bit short on change, we’d suggest you contact  

DH5yaiegoZN36fDVciNyRueRGvGLRmr7L. It seems that he/she/they/it recently stumbled upon a $15 billion fortune after deciding to get in on the joke about two years ago.  

The joke, of course, was a cryptocurrency called Dogecoin, which was created by two  wiseacres named Jackson Palmer and Billy Markus as a parody of a viral meme  involving a Shiba Inu dog. After several years in the crypto-wilderness, Dogecoin was  discovered by the reigning financial genius of our day, Elon Musk, and the rest was,  well, madness.  

The latter took to tweeting about it, beginning with a single word ‘Doge’ back in  February. The SpaceX CEO then vowed to put Dogecoin on the Moon, sharing a bizarre  image captioned: “Doge Barking at the Moon.”  

In another tweet, Musk claimed, “Dogecoin is the people’s crypto”, while in still another  he added: “No highs, no lows, only Doge.”  

When queried about why he loves doge so much he replied: “I love dogs and  memes”, adding that he purchased “the future currency for Earth” Dogecoin for his  nine-month-old son.  

Well, you get the picture.  

After all, what would you expect from someone who is worth $170 billion, but  whose company Electric Vehicle Ponzi has never made a single dime of profits aside  from regulatory credits dictated by the state? 

Still, given that Dogecoin has risen by 500% in the past week, Zero Hedge felt  compelled to call out the farce:  

There is little we can add here that David Einhorn didn’t already say yesterday,  but it’s probably worth noting for those keeping track of where in the bubble  we are now, that in the magical world of dogecoin – a cryptocurrency that  was specifically created as a joke spoof on the crypto concept and which has  been promoted aggressive by such luminaries as Elon Musk – there is now a  holder residing at address “DH5yaieqoZN36fDVciNyRueRGvGLR3mr7L” who  owns 36,711,935,369.11 dogecoins or whatever the plural is, and whose holdings  – which started accumulating back in February 2019 – after the latest surge in  dogecoin which has sent the joke crypto up 150% in the past 24 hours and 5x in  the past week…… are worth just under $15 billion.


Of course, ZH’s above reference to the intrepid value investor and proprietor of  Greenlight Capital, David Einhorn, was with respect to his already famous investor  letter released yesterday. The latter surveyed the bubble madness now rampant  throughout the entire warp and woof of the financial system and in addition to touching  upon Dogecoin made mention of a penny stock called Hometown International  (HWIN).  

Strange things happen to all kinds of stocks. Last year, on one day in June, the  stocks of about a  dozen bankrupt companies roughly doubled on enormous volume.  Recently, the Wall Street Journal reported a boom in penny stocks. Someone  pointed us to Hometown International(HWIN), which owns a single deli in  rural New Jersey. 

The deli had $21,772 in sales in 2019 and only $13,976 in 2020, as it was closed  due to COVID from March to September. HWIN reached a market cap of $113  million on February 8. The largest shareholder is also the CEO/CFO/Treasurer  and a Director, who also happens to be the wrestling coach of the high school  next door to the deli. The pastrami must be amazing! 

For want of doubt, here is what a $113 million business looks like in a world where  JayPo and his mad money-printers keep talking “economy”, but are actually inflating  the bejesus out of anything that can be traded. 


Alas, just when you are ready to completely despair, along comes an analyst we never  heard of named David Kimberley. The latter works for a publication called Freetrade,  which we also never heard of, and told Express.co.uk:  

“People are buying the cryptocurrency, not because they think it has any  meaningful value, but because they hope others will pile in, push the price up  and then they can sell off and make a quick buck. 

“But when everyone is doing this, the bubble eventually has to burst and you’re  going to be left short-changed if you don’t get out in time.” 

Well, yes.  

But here’s the thing. How can you expect the kids to not go bat-shit crazy in the middle  of a biblical mania when the so-called adults in the room have lost all contract with  reality, as well. We are referring to another shareholder letter of recent instant  notoriety, this one from the very head of the nation’s most profitable bank, Jamie  Dimon of JPMorgan.  

For our money, you could not possibly dense-pack more delusions into one sentence  even if you tried for a month of Sundays.  

“I have little doubt that with excess savings, new stimulus, huge deficit  spending, more QE, a new potential infrastructure bill, a successful vaccine, and  euphoria around the end of the pandemic, the U.S. economy will likely boom. 

This boom could easily run into 2023 because all the spending could extend well  into 2023.” 

For crying out loud. If bankers are supposed to know about anything, it’s the basic truth  of double-entry bookkeeping. Does this preening corporate peacock think that all those  deficits, all that spending, all that money-printing, all that free stuff temporarily lodged  in checking accounts at JPMorgan et. al. has happened with no off-setting cost?  

For instance, couldn’t an 8th grader tell that there is something very fishy about the  chart below?  

Last year total government spending in the US (including state and local government)  grew by the staggering sum of $1.825 trillion. That happens to be nearly 5X the gain  that occurred during the depths of the Great Recession in 2008, and towers above all  else that has come before.  

The question might present, therefore, as to what happens when government spending  returns to a semblance of normalcy, how long will it take and how are these trillions  being financed in the interim?  

Beyond that, if it has generated the kind of welcome and awesome economic Boom  implied by Dimon’s shareholder letter, why has it taken the politicians so long to  discover the purported magic of this kind of government spending bacchanalia?  

YoY Change In Total Government Spending (billions), 1980-2020

Presumably, Dimon still recalls that there are no free lunches. So why would he not be  waving the red flag, as have sober bankers for decades upon decades before, about the  long run costs and pain of the eruption of deficit finance that made the above spending  surge possible?  

For want of doubt, here’s the annual change in the public debt (market value basis) since  1980. At last year’s staggering $5.8 trillion gain, we are truly in the nosebleed section  of history. That figure is actually 23X larger than the $250 billion gain back in 1982,  when the outbreak of the Reagan deficits scared the whits out of not just your editor, but  practically all of Capitol Hill on both sides of the aisle and absolutely the entirety of the  banking fraternity on Wall Street. 

Of course, back then they knew that deficits have to be financed and were under no  illusions that Tall Paul Volcker was prepared to do it the easy way at the Fed’s printing  press. That is to say, the Jamie Dimon equivalents of the day knew it would cause havoc  in the bond pits if financed honestly out of the nation’s savings pool, and to a man (there  were then no women or theys at the top of the banking fraternity) were resolutely  opposed to the Reagan deficits.  

YoY Change In The Gross Public Debt (billions), 1980-2020

Nowadays, of course, the Fed has cranked up its printing press to a red hot level of  RPMs, which folly did temporarily delay the due bill. Then again, last year’s $3.2 trillion  gain in the Fed’s balance sheet exceeded its entire accumulation during the full century  between it creation in 1913 and 2013.  

Needless to say, printing money at $3 trillion a gulp is a financial monstrosity that no  Wall Street banker would have embraced, as did Dimon, even a few years ago.  

Explosive Growth of the Fed’s Balance Sheet, 1980-2021

Among other things, worldwide central bank money printing like that shown above has  generated a stampede into risk assets, especially equities on the grounds that central  banks will not let prices fall materially or for any sustained period of time.  

According to B of A calculations, in fact, the inflow to global stocks during the past 5  months ($569 billion) exceeds the inflows during the prior 12 years combined($452  billion)!  

Is it any wonder that money loosing machines like Tesla are being valued at 1200X its  phony net income or that hole-in-the-wall deli’s in New Jersey command a market cap  of $113 million? 

If you want any evidence that its been the raw power of cash stampeding into the Fed’s  casino that’s fueling today’s mania—-big caps and small caps alike—look no farther than  the Covid home arrest winner, $241 billion market cap Netflix.  

In a word, finally after being handed the greatest captive audience in human history,  Netflix managed to generate $1.9 billion of operating free cash flow during 2020. That  came after $10.7 billion of cumulative negative free cash flow between 2012  and 2019.  

Still, notwithstanding the Covid bonus point bulge in the 2020 figure, Netflix is still  being valued at 125X free cash flow.  

And that’s a “boom” alright. The kind that shatters everything around it when it ends.  Netflix Free Cash Flow Versus Market Cap, 2014-2021

Nor is the absurd over-valuation of the likes of Tesla and Netflix the extent of the  damage. It is becoming more evident by the day that Silicon Valley has gone Woke  Socialist and makes no never mind about the financial consequences because it is sitting  on the world’s most phantasmagorical collection of inflated stocks.  

Ever since Twitter kicked-off from its platform its very best customer by a country-mile,  it has been evident that business-impairing leftist virtue-signalling is cost-free to Silicon  Valley.  

For instance, when the Donald got banned permanently on January 9, 2021, the  company’s stock was valued at $41 billion. From time immemorial, of course, the loss of  a monster customer has always taken a heavy toll on a company’s stock, but no more.  

Twitter is now valued at $56 billion. No sweat!  

But that’s barely the half of it. The more CEO and founder Jack Dorsey has styled  himself as some present day Rasputin, the more Twitter’s stock has risen,  notwithstanding its abysmal financial results.  

Back in June 2015, for instance, the company’s market cap weighed in at $11.5 billion on  the strength of LTM free cash flow which posted at $293 million. Accordingly, its free  cash flow multiple back then was a not shabby 39X.  

For the LTM period ending December 2020, its free cash flow figure posted at, well,  $119 million, representing at 59% drop over the five year period. So at today’s market 

cap of the aforementioned $56 billion, its free cash flow multiple weighs in at an  absurd 471X! 

Twitter Free Cash Flow Versus Market Cap, 2015-2021 

So, yes, Jack Dorsey’s $5 billion fortune has remained fully intact and has actually  grown by leaps and bounds, even as he has gone full retard wokester.  

But his latest gambit in that regard should be a clarion call. The Fed’s absurd money pumping is not only creating lunatic bubbles ranging from Netflix to Gamestop,  Coinbase and the $113 million New Jersey deli, but it’s also fostering political monsters  like the one pictured below.  

It turns out that Dorsey and his Twitter censorship brigade have permanently banned  Veritas, the intrepid exposers of establishment hypocrisy and malign endeavors. Their  sin in the case was exposing the truth that CNN has deliberately used blatant scare  tactics to generate COVID-Hysteria.  

After Veritas sent in a comely “nurse” to patrol the bar scene where New York media  types hang-out and got a CNN producer to spill the beans on a (hidden) camera about  how running and hyping the Chyron of Covid Deaths stimulates record viewership, you  would think Twitter should ban CNN.  

No, Rasputin banned James O’Keefe for exposing the truth. 

With this kind of mainstream media truthless-telling, it is no wonder that we had this  showdown on Capitol Hill last week between Congressman Jim Jordan and Dr. Fauci.  

“You can say I’m ranting,” Jordan went on, “I am actually asking the questions  that the citizens I get the privilege of representing —and my name actually goes  on a ballot. I don’t think your name has ever been on a ballot.”“My name goes  on a ballot,” he added. “The citizens I represent want to know when they are  going to get their liberty back. 

Fauci’s reply tells you all you need to know. Liberty was once protected by the U.S.  Constitution. Now thanks to the censorship and propaganda of the CNNs and Jack  Dorsey’s, it but a nuisance in the way of the state’s “public health thing”. 

“I don’t look at this as a liberty thing, Congressman Jordan. I look at this as a  public health thing.” 

Finally, we have a heads-up from out peripatetic friend, Lee Adler, who always follows  the cash. If you are wondering why the 10-year UST rate has stabilized in recent days  around the 1.60% yield level, then just consider the perverse mechanics of what Jamie  Dimon was celebrating in the quote above.  

Over the last several quarters the US Treasury has issued massive amounts of bills and  notes, which have been readily digested in the bond pits because the Fed had its big Fat  Thumb on the supply/demand scales and scarfed up most of the issues, which would  have otherwise found a home at drastically, even catastrophically, higher yields.  

However, as it does periodically, the US Treasury has temporarily paid down a  considerable amount of paper as part of its balance sheet management operations.  Temporarily, therefore, great gobs of cash has been released to the primary dealers to  load up on new inventory, thereby momentarily taking the edge off from UST yields.  

However, as Lee explains below that’s just a double shuffle. At length, the debts must be  paid.  

The US Treasury is again going hog wild with T-bill paydowns, announcing  $62 billion over the past week alone. There’s actually a net paydown in April,  after new coupon issuance. Extra slosh for the party. 

And, of course, this week is the Fed’s regular monthly MBS QE purchase  settlement week April 14-21. They’re pumping $93 billion into Primary Dealer  accounts this week. The dealers have been up against it in managing their bond  inventories, and the Fed and Treasury are, as always, doing whatever it takes  to rescue them. 

So all the explanations that you are seeing in the media about why Treasuries  are rallying are just so much BS from the clueless mob. It’s about money plain  and simple. The Fed and US Treasury are doing a great job of manipulating  prices in the short run by pumping a combined $185 billion into the markets,  most of it directly into the accounts of Primary Dealers in a very short period. 

We were prepared for and expecting this liquidity to boost the markets this  week as usual in the third week of the month, but the additional T-bill paydowns  over the rest of the month are a new wrinkle that will add even more liquidity  than we expected. The end of month period may not be as dry of funding as  usual. 

This too shall pass, and we know that the end is nigh!

Yes, it is. The lemmings are in their full-on dash to the sea mode, impelled, apparently,  by the hypnotic sound of the crashing waves down below.  

David Stockman was Director of the Office of Management and Budget under President Ronald Reagan. After leaving the White House, Stockman had a 20-year career on Wall Street.

The above originally appeared at David Stockman's Contra Corner.

1 comment:

  1. The lemmings may be "...in their full-on dash to the sea mode." And we may see another crash like 2001 and/or 2007 but Stockman surely understands that the FED has an ace up its sleeve. Namely the most successful counterfeiting operation that has ever existed. Since the dollar is the world's currency reserve, the FED is stealing by inflation from the rest of the world to the benefit of the U.S. The operation is so enriching to so many that no amount of rhetoric will stop it. Only when the victims (those populations most distant from the FED) have had enough and are stirred to defend themselves by war will it end. I shudder to think how devastating this war will be.