TradeSmith Daily

June 2020

Two Theories of How America Beat the Great Depression

June 5, 2020John Banks

For more than 80 million Americans, a replay of the 1930s is not a hypothetical possibility. It is already starting to happen. According to a May poll from the Kaiser Family Foundation (KFF), 26% of Americans — more than one in four — have experienced food insecurity in the past few months. That means skipping meals, reducing meal size due to a lack of money for food, or visiting a food bank or charity in order to eat. Also, according

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Pain is Bliss When the Anticipated Policy Response is Infinite

June 4, 2020John Banks

An infinite policy response is like infinite morphine. The pain hurts, but the morphine overwhelms the pain, to the point of generating bliss. This can create a twisted Pavlovian response, in which injury or illness is something to be happy about, because new pain means a new morphine dose. This can continue deep into the throes of addiction. It can continue until smiling death. It appears the stock market has become addicted to the blissed-out high of fiscal and monetary

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Legal Market Rigging and the Panic of 1873

June 3, 2020John Banks

Is the stock market rigged? That is to say, are there shadowy hidden forces influencing market prices, in a manner that most investors don’t understand and often aren’t even aware of? The answer to that question is yes. Absolutely and without question, the stock market is rigged. But perhaps not in the way one might think, and not for the reasons one might think. To understand why the stock market is rigged — and what that means exactly — we

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May 2020

Goldman Sachs Had an Embarrassingly Bad Take on Bitcoin

May 29, 2020John Banks

On a May 27 video call discussing the U.S. economic outlook, Goldman Sachs tried to dismiss cryptocurrencies in general, and Bitcoin in particular. The Goldman powerpoint slide, which made the rounds on Twitter, was titled, “Cryptocurrencies Including Bitcoin Are Not an Asset Class.” The whole thing was deeply embarrassing — for Goldman Sachs. In fact, the power point bullets advanced against Bitcoin (and crypto) were so lame, they almost seemed like a joke, or a high schooler’s effort to rush

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“Deflation World” is Coming — and It Will Be Like Nothing You’ve Experienced

May 28, 2020John Banks

“Deflation World” is coming. For many, if not most, it is going to be a bizarre and disorienting experience. Most investors will fail to understand what is happening, or to process the consequences of what deflation will mean. And many of the “normal” financial relationships investors have come to expect will seem to run backward, like a movie playing in reverse. It is going to get weird. Deflation will be a bizarre experience in part because investors today, of all

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Why Buffett Sold Berkshire Hathaway’s Goldman Sachs Position

May 27, 2020John Banks

When Warren Buffett explained his logic for dumping airline stocks, he was blunt. “It turns out I was wrong,” Buffett said via teleconference at the Berkshire Hathaway annual meeting. “The airline business — and I may be wrong and I hope I’m wrong — I think it has changed in a very major way,” he added. For an investor whose favorite holding period is “forever,” the exit was a big pivot. In 2019, Berkshire Hathaway was one of the biggest

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Physical Gold Has a Centralization Problem

May 22, 2020John Banks

Physical gold has a centralization problem. It tends to gather in centralized places, and be guarded by centralized forces, under the strict administrative control of some centralized political authority. In regard to this topic, Ed Seykota, a legendary trend trader, made a spot-on observation in his late 1980s Market Wizards interview: “Gold tends to be dug up, refined, and then buried again. The geographical entropy of all gold on the planet seems to decrease over time. A lot has been

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Liquidity, Solvency, and Zombies

May 20, 2020John Banks

“Free money from the Federal Reserve” sounds fantastic for stock prices. Picture a giant firehose of liquidity, just spraying cash in every direction, as the Fed expands its balance sheet by trillions. How could U.S. companies — and stock prices — not benefit from that bonanza? Pretty easily, that’s how. It has to do with the difference between liquidity and solvency, and the rise of “zombie” companies. To explain the difference between liquidity and solvency, we’ll start with these two

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