What Ever You Want..

Blain’s Morning Porridge – Feb 1 2021: What Ever You Want To Believe

“No wise man has the power to reason away”

Market Jenga: At some point… it going to come crashing down.. 

This is going to be an interesting Month. We’ve going to get it all: emotion, manipulation, the behaviour of crowds, what people want to believe, what is true, and fundamental facts about markets; primarily that any financial asset is only worth what people believe it to be worth. What the actual/real worth of any stock is, is an empty question – it’s the price the market is willing to pay that counts.

As we start the week, it’s going to be about Silver as the Reddit traders follow the posts imploring them to buy-into the feeding frenzy and ramp up the precious metal on non-sensical promises they are going to bring down the banks by forcing them to cover trading positions. Ask the Bunker-Hunts how well that worked for them back in 1980.

To understand the current Reddit mentality, check the interview in the Journal with one of the Reddit traders behind the Gamestop mania. Keith Gill is a former marketing chap from Mass Mutual. Today is he “DeepF***ingValue” on Reddit, also known as “Roaring Kitty” on You Tube, and he’s got $33 million in his bank account – which is impressive, but demonstrates the power of convincing others to back your belief. He made a paper gain of $20mm on Gamestop while being interviewed by the WSJ!

What’s interesting is it’s not just Reddit. Since Wednesday I’ve seen dozens of posts from astute financial professionals urging their colleagues to follow the money and join the Silver ramp. Who doesn’t like a free-lunch? It’s kind of logical from a market perspective, but totally unjustifiable from any fundamental narrative about Silver suddenly being worth more. Nope, the only reason to buy is to coat-tail the “let’s destroy Wall Street by ramping Silver” story. I guess you might call it a “career hedge”?

All of which must be making bank analysts and professional investment stock pickers nervous – for all the screeds of data they scan, the balance sheets they crunch, the top-down and bottom-up analysis they do of companies… it would actually be better just to say.. “Heck yes.. this is a great company because some 19-year old just spun a great options trade, and the mob followed him to push it higher on the belief it might destroy Blackrock!” Wow… Can I buy that?

You can fulminate about how unjustified and unsafe it all is, or you can follow the money, secure in the knowledge central banks aren’t going to let markets collapse – no matter how much the day-trading Reddit traders riot all over it. Which is a whole other problem….

Mr Market is loving it.. The more marks join the money game, the more money is sucked in, the more it’s going to hurt.. It’s basically an enormous game of Market Jenga. At some point… it going to come crashing down! Yay…

It’s maybe surprising to financial professionals just how few civilians actually understand it’s possible to short a stock – selling something you don’t actually own. It makes sense from a market perspective – the price of any stock is a vote between those who think it’s cheap (who buy to go long) and those who think it’s too expensive, (who sell). If you want to sell a stock it would create a false market price if you had to buy it first! As long as you sell a stock, and deliver that stock (through the clearing mechanisms) then it’s simple. It’s a mechanical process for institutional investors to borrow stock at a certain price to deliver it. For retail, they do have to cover their shorts or face being “bought-in” if they don’t deliver.

The basis of the Reddit Revolution is the power of mob and the platform – get enough people together, get them bought into the concept and persuade them to join the attack. Juice them up with reinforcing social media and fake-news, the easy ways to persuade people to believe what you want them to believe, and it becomes a Rolling Stone on its way down the hill.

Apparently its not illegal because no one is doing it to mislead others. While “concert-parties” of linked investors are subject to regulation in certain instances, you can’t stop people believing what they want to believe. But if Mr Roaring Kitty was to be urging people to buy Gamestop while he was shorting it – that’s when you’d expect Jordan Belfort to jump out of the cake offering to sell you penny stocks. (In the background I am sure there are multiple Belfort’s already howling round these markets….)

Strange days indeed..

Meanwhile.. Back in Yoorp…

Apparently, polls show a majority of Europeans believe Astra-Zeneca is 100% responsible for the delays and failures getting vaccines out and around the European Union… (even though the EU only approved the vaccine on Friday and the Germans say it doesn’t work.)

Again, people believe what they want to believe. It all got so emotional in Brussels on Friday, that VDL, (the nickname of choice for thrice-failed German politician and ditherer-in-chief (DIC) in Brussels), panicked and decided to stop vaccine deliveries to the UK while closing the Irish border – all without bothering to inform the Irish, the British, or any other EU officials outside her core group.

(Wind-up time: I can’t understand why the Dublin Quislings are so incensed.. as a vassal-state of the Brussels Reich should they not do exactly what VDL tells them to do..? (I can’t wait for the Dublin response – which I shall savour… best comment from an Irishman gets published tomorrow.))

The widely circulated tale this weekend is all about how Michel Barnier, the EU’s Brexit supremo, saved the day and forced VDL to step back from the abyss. I reckon it’s a political play… After 15-years in Europe (from special advisor, then Commissioner for Internal Market, and then chief Brexit negotiator) Barnier is returning to French politics, and has his eyes on the Elysée as the Candidate of the Centre Right.

Macron is unlikely to see a second term. His delusions of grandeur, his mis-handling of Gillet-Jaune, the growing unpopularity of the European superstate, and now Covid and the vaccine delays, leaves him vulnerable to collapse in the 2022 elections. As his En-Marche evaporates, the election is likely to be a repeat face-off with Marine Le Pen’s Far Right, a competent looking Centre-right alternative could well prove attractive to French voters. Watch that space…

The truth about the promised Astra-Zeneca vaccine deliveries and contracts with Yoorp will probably never be known – to protect the guilty. It’s clear there was utter incompetence on someone’s part. It will be covered up because the Pharma executives are smart enough to know that exposing their clients to ridicule would be expensive from both a regulatory and future orders perspective.

The drug maker agreed to produce the Vaccine at zero-profit on a best-efforts basis. It agreed terms with the UK months ago. Making vaccines isn’t simple, but its fairly well understood second-year brewing and microbiology. To ramp up production isn’t an overnight process. It does require some fairly substantial plant to be fitted, including very large high-spec refrigeration. I’m told these units were delayed, and only fitted in the new UK production facilities over Christmas.

Back in Yoorp, it took the EU a further 3 months of quibbling about the price on Astra-Zeneca’s contract (a zero-profit deal) before they inked the deal and insisted on production in Europe. At that point AZ ordered the required capital plant, including the refrigeration units – which just like in the UK are taking time to instal – hence the delays.

These delays are entirely due to EU delays in signing the contract. Yet the EU won’t accept its responsibility. What we saw over the weekend was bully-boy swagger. VDL’s coterie were willing to trigger a trade war with the UK, trample rough-shod all over Ireland, and deny UK citizens a second dose of the Pfizer vaccine, in punishment for being the home of Astra-Zeneca.

Europe should wake up to the monster they’ve created in Brussels. Someone, probably not VDL herself, but a top level minion, should be shot.

Five Things to Read This Morning:

WSJ – Gamestop and AMC are on a tear, but their businesses aren’t

FT – Reddit traders switch sights to silver after equities attack

FT – Short sellers face the rage of an army of small traders

Torygraph – The IMF has lost the plot on UK growth

BBerg – Merkel to Convene Crisis Talks Amid Chaotic EU Vaccine Rollout

Out of time, and back to the day job…

Bill Blain

Shard Capital