"Extraordinary Popular Delusions"
By Bill Bonner
"Let us not, in the pride of our superior knowledge, turn with contempt from
the follies of our predecessors. The study of the errors into which great
minds have fallen in the pursuit of truth can never be uninstructive."
– 19th-century Scottish author Charles MacKay"
WEST RIVER, MARYLAND – "As you know, Dear Reader, we live in an Age of Miracles. Jesus could turn water into wine. But the Federal Reserve can go one better… It can turn worthless pieces of paper into – money! Trillions of dollars’ worth of money. Enough to “stimulate” the world’s biggest economy into a state of transcendental ecstasy. Or at least into a pleasurable, momentary delusion of normalcy.
Distraction: This is the big story of the 21st century… the fantasy of fake money and the subsequent real-world, real-time butt-kicking that Americans will get as a result. But we are getting ahead of ourselves. We are only in the fairly early stages, when the delusions are still more or less agreeable. Our biggest challenge here at the Diary is to avoid getting distracted and misled by them. Each incredible tale has its own trail of hooey leading to yet another incredible tale. Follow one… and then the other… and pretty soon, you are lost. But let’s see where we end up today.
Infinity Squeeze: Last week, the Reddit crew seemed to open a whole new chapter in financial history. Suddenly, using the internet, a flash mob of “little guy” investors was able to humble the big, rich hedge funds. The hedgies had sold some 140% of the GameStop shares outstanding. Some people wondered how that was possible. Others wondered why it was legal. Or how the young traders – led by Reddit users Roaring Kitty or DeepF**kingValue – could possibly execute an “infinity squeeze” against the pros.
Even the “infinity squeeze” itself is an object of wonder. In it, buyers drive up the price so high… leaving so little available float that the next buyer (say, a short seller who needs to cover his bet) must pay an infinitely higher price. We didn’t know how it would turn out in practice, but anyone could guess how it would go in theory. Once the shorts had all retreated, licking their wounded egos and counting their billions in losses, the longs would be masters of the field.
Back Down to Earth: But then what? They would be holding shares in a company, bought at an average basis cost far above what they are really worth – perhaps hundreds of times more than they are worth. These buyers had sworn to “never sell.” And perhaps, in the spirit of solidarity or insanity, they would stall before hitting the bid. But all is fair in love, war, and squeeze plays.
The smartest of them edged towards the exit last Thursday, selling a stock then worth more than $400. By yesterday, a crowd had rushed the open door, trampling many and bringing the price down to $90. In a few weeks, it ought to be back to where it began, around $15. By this time next year, it might be closer to zero.
For while the Fed can perform miracles of levitation on Wall Street, it leaves Main Street flat on the ground. And GameStop, a bricks-and-mortar retailer of video games now readily available online, seems likely to go out of business.
Hate the Rich: So what was that all about, we wonder? All the sturm and drang? All the huffing and puffing on the part of bystanders? Everybody seemed to get worked up about it. The shorts thought they were doing God’s work – helping Mr. Market find the appropriate price for GameStop shares. The longs all wore white, too, confident that they were on a crusade to stop the rich from taking over the world.
The only “takeaways” for us from the whole saga were that the Fed’s bubble must be getting ready to pop (the madness of the gaming crowd is reaching a fever pitch)… and that hatred towards “the rich” is running high – and growing. A recent news item told us that a wealthy white couple had rented a private plane in order to go into the wilds of Canada to get “the vaccine” that had been sent for the local people. The Guardian’s headline captured the hate-the-rich mood. ‘It disgusts me’: how a wealthy couple lied to get a vaccine meant for Indigenous people
It’s hard to know which part of the news item to wonder about first. The rich couple turned out to be young. They didn’t even need the vaccine. Why bother to fly across hundreds of miles of wilderness and pretend to be local motel staff in order to get it? And how did they get away with it? The town of Beaver Creek in Canada’s Yukon territory has a population of about 100. Everybody knows everybody else.
And isn’t the vaccine supposed to be in short supply? Isn’t it supposed to be the only thing standing between life and death for millions of people? Why send the precious elixir to the middle of nowhere and give it to people who’ve reportedly never had a single case of the disease? We have no answers. We only wonder.
And we wonder what the effect would be if the roles were reversed. Let’s try it out: Indigenous people lie in order to get vaccine intended for the wealthy Who would be disgusted then? At whom? We wonder.
White Hats: But wondering takes time. And energy. More important, it turns your attention away from the main drama. It is like a sidewalk clown who swallows a mouse so you won’t notice the bank robbery across the street. But more than a distraction, it is a formula… a universal template that you can use to shore up the levees on the magical river… and imagine that it always leads to ever-more miracles ahead.
The GameStop story pitted the “little guys” against the “big guys.” The little guys won… until they lost. Then, the media dropped the story.
The “rich” stole the vaccine from “indigenous people.” Now, they are threatened with jail time.
An “insurrection” in Washington was a battle between the pristine forces of democracy… and a mob of barbarians. The bad guys are being hunted down.
And even the COVID-19 Plague story followed the same Hollywood script. The bug killed millions… but The Science and Mankind (oops, we mean Personkind) triumphed by developing miracle vaccines. Surely now, anno domini 2021, the white hats at the Fed – with their “miracle” money at hand – will triumph again… and banish poverty/recession/financial crises from the face of the Earth. Or not. Stay tuned."