Michael Ballanger: Aging In The New World Order Of Managed Markets
SilverDoctors.com
March 21, 2019
There’s a voting bloc of seriously large weight & stroke that’s in full disagreement with the notion that “all is well”. Michael explains…
by Michael Ballanger via Streetwise Reports
After over 40 years in the world of money and markets, I have arrived at the conclusion that aging can be a double-edged sword where the advantages created by many years of experience are many times odiously offset by innate biases that become ingrained over time. It came to me while listening to a fascinating interview with Felix Zulauf, a former money manager and member of the legendary Barron’s Roundtable. During the session, brilliantly hosted by Realvision TV’s Grant Williams, Felix made reference to a real and present danger looming on the horizons for global financial markets, which is the growing influence of government in the future direction of markets—ALL markets.
Sexagenarians such as I were weaned in the very early years of free markets long before central banks took control of everything from foreign exchange to soybean prices. We were educated to believe that the really BIG wins always occur when you feel like the loneliest person on the planet when taking on a new position. If you recall the book (and movie) “The Big Short,” you felt the pain of people like Michael Burry whose clients were ready to lynch him in the early days when Goldman Sachs refused to properly mark his month-end (bearish) positions. You were also cheering from the end blues when subprime imploded and Burry has the last laugh (and payday). To deem it “magical” would be understatement.
I recall as if it were yesterday the year 2001, sitting in a kitchen with a group of young working mothers who had just found out that I was in the investment business and proceeded to pepper me with questions. These were people I had never met before and after a few moments, two of them asked me what I thought of Nortel Networks, one of the last companies standing in the latter stages of the tech bubble of 1990–2001. I proceeded to tell them that “if I owned it, I would sell it before you have your morning coffee because it is going to zero.” Not noticing that the cheers had turned to jeers and the smiles on those hopeful faces had been replaced with scowls of contempt, I further added, “…and if you DON’T own them, I would find someone who does, borrow them; promise to give them back the shares in twelve months; and then sell them before you have your morning coffee.”
Now, most of these nice ladies had grown openly hostile so after a few derogatory remarks, the room cleared out except for one bespectacled young mother who asked why, so I told her my reasons as plainly as possible. After thanking me for the “insights,” she then proceeded to tell me that everyone at the party (herself included) worked for Nortel and had their life savings and 100% of their retirement funds in Nortel stock. Needless to say, I was speechless and after being shunned for the entire room for the next hour, I departed after apologizing to the host for accidentally attempting to earlier swallow both of my feet.
Well, fast forward to a year later and Nortel had dropped from $125 per share to under $1.00 before going to zero and being delisted from the TSX and NYSE exchanges, and as I am walking through the Upper Canada mall, I hear my name being called and lo and behold, it is the bespectacled lady from that “Nortel party.” She proceeded to thank me about a dozen times because the first thing she did that following Monday, after our kitchen discussion, was to phone her broker and liquidate every Nortel share she could find in all of her accounts. She even called her mother and father and told them to do the same as well as all of her co-workers. “How did THAT go over?” I asked to which she responded, “Not very well. They unfortunately held on and three of them have not only lost their jobs, but also their homes.”
In the days around 2001, companies with negative cash flow eventually got trashed and if the accounting practices were fraudulent (as were Nortel’s), the executives usually (not always) went to jail. However, in 2001 with Nortel cruising at $125, literally EVERYONE owned it and even the mailroom clerks could recite five reasons WHY it was going to $500. The moral to the story is this: In the era before social media and germ-colony progressive cheerleading, one could take a contrarian view on a specific company or a specific market and expect to be proven either right or wrong based on veracity of one’s investment thesis. There was no such beast as a software-driven “algorithm” juicing a specific stock or market in the face of declining performance or economic conditions. You were rewarded within a reasonable period of time because you were operating in a FREE MARKET environment.
Take the example of Tesla (TSLA:US), a company whose fundamentals, according to most of the analysts I have listened to, are eroding rapidly amidst growing electric-car competition from the big auto makers in both the U.S. and Europe. Despite the overwhelmingly bearish data, I am terrified of shorting TSLA because of one major risk: social media. One tweet from CEO Elon Musk has been known to advance the stock price 20% in a day despite numerous warnings and sanctions from regulators and yet, the poor slob that is short the stock is in need of new knickers and is on specialty blood pressure pills.
Similarly, if you have been a holder of precious metals or the companies that explore for or produce them, you have been watching for the better part of 30 years a system of government and regulatory collusion in suppressing the prices in an ongoing effort to fortify the U.S. currency regime.
One last example of the disappearance of the free market is that very U.S. dollar and its role as the global reserve currency. Total government debt for the U.S. exceeds $22 trillion, which is $13 trillion greater than the second most-indebted country, the U.K., at $8 trillion. In a free market system, investors would question the soundness of any country so heavily in debt and unanimously reject its currency. However, the world appears to be collectively “short” dollars and are scrambling to own more dollars into every dip and for all of the (apparently) wrong reasons. The reason for this lies in one word: DEBT.
At the end of the day, the American spin machine has convinced the world that it will NEVER default on its debts because, after all, America is the heart and soul of free market capitalism and the driver of wealth creation the world over. However, like Nortel 17 years ago and Tesla 17 minutes ago, once you have lifted the hood and start doing compression tests on the cylinders, you rapidly realize that the American engine of growth, the middle class, is in deep trouble and in need of new rings and valves.
Notwithstanding the fact that America is a wonderful country with some of the warmest, nicest people on the planet, its leaders have been forced to maintain and prolong a massive, multi-generational Ponzi scheme designed to finance the NATO war machine, spearheaded by the U.S. military. As I have typed for years upon years, the only way that changes is when the USS Nimitz pulls into Gibraltar for a refitting and they refuse the credit card. In other words, the Achilles Heel of the U.S. is the dollar—the exact weakness being targeted by those that would seek to eliminate the petrodollar and the SWIFT payments systems. Make no mistake, that IS happening as we speak.
