This year has already been marked by two significant financial events: the GameStop (GME) and Bitcoin price explosions. There was no justification for either market price increasing the way they did. GME did not go higher on either corporate fundamentals or stock price technicals. Bitcoin is still not money. But neither of those factors matter even a little.
Let’s get a couple of things straight. The GME deal was not in any way unusual. The Reddit group had been around for years. A situation was found that created a profit opportunity only if enough of the group’s minions moved in the same direction. The only reasons it was front page news was that the hedge funds were caught on the wrong side of the trade and it was facilitated by Satan’s Ultimate Tool—Social Media.
By comparison, we can have a stock market group or two on Philippine Facebook “pimping” a stock as the next super-duper backdoor listing or with the technology to extract gold from seawater. The principle is the same.
Tesla is not a car company. The company should be called “ElonMusk Inc.” If Musk gets run over by one of his own self-driving cars, no one will buy the stock. It currently has a $6.1 billion retained earnings deficit. The company has and will continue to borrow $2 billion for its “Giga Shanghai” factory. But Tesla bought $1.5 billion of Bitcoin and within minutes of that being announced, the price was up 20 percent. Tesla was just rated the worst—33 out of 33—automobile brands in the world in the J. D. Power 2020 Initial Quality Study. No one cares.
And suddenly major banks and global financial institutions—the ones that get bailed out by taxpayer money every decade or so—is buying Bitcoin. Governments are Satan’s ultimate financial tools.
However, GME and Bitcoin give us critical information about the future if you are willing to listen and are not caught up in the feeding frenzy.
GME is supposed to tell us—according to the experts—that the stock market is a rigged game, needs massive reform and regulation and “blah blah blah.” Bitcoin is supposed to tell us—according to the experts —that government-issued fiat money is dead, the future is electronic digital money, and “blah blah blah.” I added the “blah blah blah” so anyone can add more reasons like “It’s all part of a Putin/Illuminati/Communist conspiracy plan.”
The reality is that these two situations are the tips of the “hyper-inflation” and “hyper-speculation” icebergs.
The global inflation rate for 2020 is estimated at 3.18 percent and in the US at 0.62 percent. That is not too bad unless you remember that it does not include food and energy. The UN Food and Agriculture Organization World Food Price Index was up 19.1 percent in 2020. Brent Crude Oil price is up 205 percent since May 2020.
Eric Peters, CIO of One River Asset Management, said: “A healthy market has those who can see both sides of the trade, and they may differ in how they weigh the risks, but they acknowledge they exist.” But why would anyone worry about stock market risk?
The Dow Jones is up 63 percent since the pandemic low—hitting an all-time high. The Japanese stock market is back above 30,000 for the first time since 1990. Total global stock market capitalization has reached a new historical high of $90 trillion. “We don’t care about a stinking pandemic!” Policy-makers are unwilling to allow negative nominal asset price returns.
So sit back and enjoy the ride for now. You will even have opportunities to make a lot of money…until you won’t.
E-mail me at mangun@gmail.com. Follow me on Twitter @mangunonmarkets. PSE stock-market information and technical analysis provided by AAA Southeast Equities Inc.