"Peak Lunacy?"
By Bill Bonner
RANCHO SANTANA, NICARAGUA – "We are still skipping ahead in the as-yet-unwritten Big Black Book of Financial Disasters. Thumbing over a few pages, we find this passage describing 2021: “As the U.S. economy became more dependent on fake money… it also came to be weirder in other ways. Investors, for example, were willing to put their money into projects with no products… no profits… and no hope that earnings would ever justify the price. It was as if they came to favor schemes which – like their money itself – had no measurable substance.”
Yes, Dear Reader, we will not escape the judgment of history. It will come down on us like a hammer on an egg.
Puzzling Announcement: And today, colleague Dan Denning alerts us to a fascinating ovum. On Wednesday, The Motley Fool tweeted: "We’ve got BIG NEWS! We’re buying $5 million in Bitcoin on our own balance sheet." That’s right. $5 million. Whoa! We must be near peak lunacy. When otherwise sane and sensible people begin to wager on a project with “no measurable substance,” the hammer cannot be far away.
Motley Fool is a financial and investing advice firm… Our analysts would say that it “operates in the same space” that we do. And it’s been around almost as long as we have, providing what we presume is decent advice. But where we bob… Motley Fool weaves. It is a company of optimists… of forward-looking alpha seekers, with a cheerful demeanor and respectable social standing.
Your editor, on the other hand, fits in neither in Washington nor on Wall Street. He feels like an imposter in a business suit… suspects most new technology is a waste of time… and sees armed Greeks peeking out of every wooden horse…
And while your editor and his small group of colleagues – Dan, Tom Dyson, and Joel Bowman – look at the macro picture, connecting the dots to understand what is really going on, the Motley crew focuses on micro analysis (trying to find the best stocks), à la Warren Buffett. Which is why Motley Fool’s announcement is particularly alarming. “Have the Fools lost their minds?” is our first question… to which we respond in the negative – “Probably not.” “Is this an investment move… or a publicity stunt?” is the follow-on interrogatory. We don’t know.
Greater Fool: When it comes to bitcoin, traditional investment analysis is as useless as a Senate Committee. There is no way to add up bitcoin’s anticipated earnings and discount them to present value. There are no earnings… Never will be. Which makes this a macro play… and an exceptionally reckless one, in our opinion. Bitcoin has gone up 80% this year. The Fools are betting that it will go up more. Why? Because it has gone up! Pure hopium, in other words… the Big Mo… You buy something, hoping that there is a greater fool who will later buy it from you at a higher price. This is not the way the man from Omaha would do it.
And who is that greater fool? Well… Maybe it’s MicroStrategy CEO Michael Saylor. We wrote about him 20 years ago, when he said something particularly idiotic. “Information wants to be free,” said he… providing a slogan for the dreamers of the dot-com bubble era. Information may want to be free. But MicroStrategy, which provides software for various business applications, keeps its own info in chains… renting it out only to paying customers.
And the “Information Revolution” for which Saylor carried the flag two decades ago was largely a flop. Growth rates did not go up; they went down. People did not get richer; most got poorer. The world was not turned into an enlightened Eden in the 21st century; it became a mess of war, debt, and dopiness. And now, French researcher Michel Desmurget finds that our IQs go down in direct proportion to the number of hours we spend enjoying our electronic diversions.
Yes, that is what the Information Age has wrought so far. We are dumber, more impoverished, and more ready than ever to trade something for nothing. For what is an “investment” with no investment return? What is something worth when it has “no measurable substance”?
Intoxicating Fumes: And what’s this? Here’s Saylor again… ringing a bell. Bitcoin.com reported in December: "MicroStrategy started buying large amounts of bitcoin in August via Coinbase’s institutional service, making the cryptocurrency its primary reserve asset. After exhausting its own excess cash, the company raised funds by selling $650 million worth of convertible senior notes to buy more bitcoin, causing Citigroup to downgrade its stock. At the current price, MicroStrategy’s 70,470 bitcoins are worth more than $1.6 billion."
Yes, MicroStrategy embarked on a macro trade to fluff up its balance sheet – trading real business earnings for the intoxicating fumes of a cryptocurrency. And then, Saylor – a certified genius… a Musk without Tesla – went further, borrowing hundreds of millions to buy more! And he scored a big success. No kidding. It sounds like a joke. It sounds like someone is pulling our leg so hard, it’s coming out of its socket. But Saylor has doubled his company’s investment in the last two months!
Raving Lunacy: Caution: The events described in this Diary are not things you want to try at home… not without a psychiatric professional standing by. Instead, it’s the sort of raving lunacy people get up to when prices are fake, markets are fake, and interest rates are fake… The fools begin frothing at the mouth and eating the rug. And they make money… for a while.
Next week, we will skip ahead a little further, to when the meds kick in…"
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