Free eLetters

June 2020

Was the SEC Right to Block the Hertz Offering?

June 19, 2020John Banks

On June 15, Hertz announced plans to raise $500 million in a new share offering. This was controversial because Hertz is in Chapter 11 bankruptcy, the creditors have dibs on the assets, and the new shares have statistical near-certainty of being worth zero. We wrote about this fiasco on June 17. That same day, the Securities and Exchange Commission (SEC) put a stop to the $500 million offering by announcing they had comments on the disclosure document. (If you are

Read now

How World War III Could Begin with a Fistfight on the Outskirts of Tibet

June 18, 2020John Banks

On June 15, a deadly fight broke out in a disputed border region between India and China. It was reportedly an actual, literal fight — with fists and iron rods — between dozens of Chinese and Indian soldiers. It was not the first fight of its kind, nor even the first one this year. In May 2020, another large-scale fistfight broke out in the same disputed area. This time, though, at least 20 soldiers died on India’s side, some of

Read now

A New Share Offering to Raise $500 Million — From a Company Worth Zero

June 17, 2020John Banks

On June 15, the 2020 Lockdown Mania reached new heights of insanity. With the milestone achieved on that day, the mania cemented its place in financial history books. And speaking of history books: If you’ve been around markets long enough, you have likely heard about wacky schemes from centuries past, designed to fleece speculators at the peak of a frenzy. For example, near the peak of the South Sea Bubble in the early 1700s — a mania that pulled in

Read now

Fractional Reserve Banking, Monetary Velocity, and “Pushing on a String”

June 16, 2020John Banks

A fair number of people believe the Federal Reserve has control over the U.S. money supply. They also assume, by natural extension, that the Fed is responsible for the total amount of money in circulation. Neither of those assumptions are true. It’s important to understand why, as we will shortly explain. The Chairman of the Federal Reserve, in certain ways, is like a jockey riding an elephant. The jockey appears to have control over the elephant. Through various actions and

Read now

The Rocket Fuel that Powered the Rally will Soon Run Out (If it Hasn’t Already Done So)

June 15, 2020John Banks

We now have a basic understanding of what powered the 2020 rebound rally, which then morphed into a lockdown mania, and which now appears to be over. This is important because, with a sense of what happened — and the various components involved — we can better understand the probability distribution of what is likely to happen next. From the current vantage point, it looks like the rally was powered by “rocket fuel” that is now running low, and may

Read now

A Requiem for the 2020 Lockdown Mania

June 12, 2020John Banks

The 2020 lockdown mania — our term for the ripping rally off the March lows, which went completely off the rails in the end — was the worst kind of bubble. It was born of greed and hubris, with little of value left behind. It was powered by ill-considered government stimulus, adding weight to a deficit topping $26 trillion. And it set up the markets, and the economy, for greater pain in its aftermath. Note we say the lockdown mania

Read now

Like It or Not, We’re All on Board the MMT Train — and the Train Has No Brakes

June 11, 2020John Banks

Modern Monetary Theory, or “MMT” for short, is a hot topic — or at least it was before 2020 exploded. Prior to the pandemic, there was a lively, ongoing debate about whether MMT was a good thing or a bad thing; whether MMT makes sense, or whether it’s a bunch of nonsense; and how soon deeply indebted Western governments might implement variations of MMT. As of June 2020, we can say that MMT is no longer a hypothetical. It is

Read now

Signs That Market Sentiment Has Reached Dangerous Extremes (The Sequel)

June 10, 2020John Banks

On Jan. 24 of this year, we noted “Three Signs Market Sentiment Has Reached Dangerous Extremes.” Within four weeks of that broadcast, the stock market peaked, and one of the swiftest bear market declines in history followed. Now market sentiment is looking extreme once again. If anything, the new levels of euphoria make the January action look sleepy. We are seeing bizarre market patterns, investor behavior that makes no sense, and even snooty dismissals of Warren Buffett. We can begin

Read now

The Ex-President of the European Central Bank Reveals the Playbook

June 9, 2020John Banks

It’s rough out there — not just for the United States, but the entire world. The global economy is expected to face its worst recession in 80 years, according to a new Global Economics Prospects report published by the World Bank. This means that, to find a comparably bad recession year for the global economy — all countries across the board — you would have to go back to 1940, the first full year of World War II (which began

Read now

The Virus Didn’t Leave and it Isn’t Slowing Down

June 8, 2020John Banks

“The COVID-19 recession is over,” said Mark Zandi, the Moody’s Analytics chief economist, last week. But then he added a qualifier: “Barring… a major second wave, or real, serious policy errors.” In other words, if the world avoids events quite likely to happen — with a probability significantly greater than 50% — the COVID-19 recession is over. This is head-scratching logic, but the market appears all in. Through the power of magical thinking, the virus is being wished away. In

Read now

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

Read now

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

Read now