Blain’s Morning Porridge, Dec 17 2020: Lords of Misrule

“He is the Lord of Misrule, the Abbot of Unreason in charge of Scandalous Fun!”

First this morning; a gentle reminder of this year’s charity project: Walking Home For Christmas. Myself and Nicky have now completed our 3 Charity Hikes for ex-Military suffering mental health issues. Please donate to Team Morning Porridge. (We know the PayPal function is “poor”, but please persevere with it!)

And…. BIG NEWS: Yesterday I won the Shard Capital Christmas Quiz! Who else knew the year Maria Scary first told us what she wanted for Christmas?

Lessons from History…

3000 years ago we would have painted ourselves in Woad and celebrated Yule and the return of the sun in an orgy of drinking and excess. 2000 years ago we’d be wallowing in the madness of the Roman Festival of Lupercalia, dancing naked round the streets, electing a slave as Ceasar, and generally being stupid. 1000 years ago Christmas was marked by the Lords of Misrule, as a young lad would don bishop’s robes and Turn the World Upside Down. Mummers would prowl the streets demanding drink, money and hot investment tips.

Being daft over Christmas is not a new thing. In these difficult times, people are inclined to be credulous, and believe anything – especially in promises to make us all fantabulously better and shower us in unearned wealth.

So, it’s no surprise Retail investors are driving the market. Robinhood is being taken to court in the US for presenting stock investments as a kind of game that glosses over the risks.  There is a brilliant twitter-thread of an angry guy complaining the platform isn’t working and how he’s going to take them to court, to which they respond the market isn’t open on a Saturday.

Yesterday I responded to an add from a trading platform promising me one very real Tesla share if I could make a modest return on a notional 5 times levered £10k investment.  I ticked the boxes and got a call from a chap straight of Boiler Room offering assistance.  He conspiratorially told me I should get started for real. He asked if I knew anything about investing and I told him I didn’t… not his kind of investing anyway..

Who could possibly think that helping an innocent investment virgin to lose money 5 times faster than normal was anything else but an attempt to drum up marks to churn and burn…? Perish the thought..

But when it comes to incredulous stories..  I wonder if the latest pinnacle of this mad season is Bitcoin?

It’s up 200% this year, at $22k this morning, and the newspapers are full of articles about how its increasing acceptance and buy-in by the serious financial community makes a tangible and very real asset you miss at your peril.

Yesterday the CIO of Guggenheim (which manages $220 bln AUM) was on Bloomberg and said his firm’s Fundamental Analysis (Fundamental? Ah, must be serious and very grown up), shows bitcoin should be worth $400,000! Nope. I don’t want the pills he is taking. They are clearly dangerous and highly delusional.

But when you read stuff like that, even smart people begin to wonder, to believe and hope… They ask themselves.. maybe I should put just a little money in? That kind of hope leads to dangerous places.. Maybe I should accept the possibility the Earth is flat and dinosaurs drowned in the flood?

Read and believe what you want to believe about Cryptocurrencies– or more correctly read and believe what the Bitcoin shysters want you to believe. 

Their narrative is very simple:

First there is Placement: putting in place the narrative that Bitcoin is now acceptable, a real asset and that its credible. “They” want you to believe Bitcoin is now mainstream, that its kosher and therefore a genuine asset providing genuine upside. The most effective way to do that is create the illusion of acceptance and sponsorship. So, the stories being pushed include: Paypal now accepts payment in Bitcoin! That Alan Brevan of Brevan Howard is now a holder. Or how Ruffer is now holding 2.5% Bitcoin as “insurance”. Umpteen other big famous investors say they are now holding Bitcoin. Well, if these guys believe in it… surely you should too?

The next stage is Layering: attenuate the positive news flow with a host of spurious serious stories about why Bitcoin is now widely accepted and is a valid investment asset. The multiple strands of the narrative now tells you why mainstream accounts are buying because they expect it to replace gold, or it’s got lots in common with gold, but is better because its not connected to yield curves or inflation and is less risky. The financially uncertain take it all in.

If the questions get difficult, like why not just accept Gold, the punters will quickly be reminded of how the US government once made gold illegal.

And if you question the merits of Bitcoin versus fiat currencies you will be deluged in doubts. How the furious pace of government monetary and fiscal stimulus over the last 10-years, which has been so accelerated by the pandemic is utterly unsustainable, that government debt will bury us all, will result in rabid inflation and economic dissolution. They will point to the Ruffer story and say BC is a “a hedge against monetary and market risks.”

If you dare to question the narrative further, the layers get deeper and darker as the Deep State Government threats to Libertarian values are wheeled out. How rising debt is all about keeping everyone down, and confirming the power of the “elites”. Just read the comments on Zerohedge this afternoon if this article is posted to see how deep that narrative has already gone and established itself.

Otherwise, most of the layering narrative is about how your neighbour bought Bitcoin with her redundancy cheque, and now she’s just bought a Ferrari.. And you can own one too, if you just buy in.. FOMO is a very powerful force in finance.

The final stage is Integration. As the greater fools buy in, the Bitcoin shysters sell the positions they accumulated the last time Bitcoin collapsed and invest their money in bonds and gold. You can read about it in the stories about Bitcoin “whales” selling down their positions…

It’s a cycle that can go on forever… It works well in times of doubt and stress.

500 years ago I probably would have been the guy refusing to accept these new fangled slips of paper called money. I would have said something like Gold is real! Give me gold… even though the coins would have been clipped, smelted and debased till they were little more than gilded trinkets. I would have fumed about the worthlessness of any Government promise to honour paper money.. and I’d probably got cranky about the risks of the new cash being a spontaneously combustible fire risk, disintegrating if it was put in the river for a wash, or how easy it could be replicated by the local counterfeiting printer.

Similar charges can be rolled out against bitcoin. But the greatest issue is it’s not real. Its just an invented intangible idea. Somebody very clever suggested if you made anything scarce, no matter how intangible, then it has a value. Someone very smart called it Bitcoin and persuaded people to buy fresh air in a can.

Maybe I should give up on modern finance? It doesn’t make any sense to me why anyone would believe that an imaginary token recorded on a “distributed ledger” that can only be “mined” by expending billions of kilowatts and creating carbon overload on a planet facing climate emergency, makes any sense? If nothing else Bitcoin should be excluded from every investment portfolio on ESG grounds. (That’s serious btw.)

I will go with digital currencies though. The ones we are likely to see backed by government, central banks and real belief. And I can’t wait for them to put the Bitcoin crowd into the same place counterfeiters went….

And finally…

I need some help from readers.. What was the greatest trade you missed this year? I missed some cracking deals… and will write about them tomorrow. Please email with any great, funny, stupid trades you saw!

This is second last day you can contribute to this year’s charity appeal.

Five Things to Read This Morning

FT – Powell Preserves his dovish credentials at tricky moment for Fed

FT – Investors bet on slow return of dividends after Covid interruption

Master Investor – Beware IPO Madness

WSJ – Bitcoin tops $20000 for first time

BBerg – Can Markets Defy Gravity Again Next Year?

Out of time, and back to Day Job!

Bill Blain

Shard Capital