Free markets where there are losses?
Hello and I am all colours, Sam.
I hope I did this right:
A short week for me. Gonna play some poker.
Have a great weekend and happy 4th for those who celebrate.
The usual eclectic mix below: A great Nick Nemeth/Marty Bent podcast - make sure to check that one out. Also some funny stuff, some strange stuff, some patriotic stuff, as well as…
Sound
Film
Music
Radio
Jeff Buckley supposedly once said his biggest musical influences were "love, anger, depression, joy, dreams...and Zeppelin":
Grok summarized my Substack:
Congress is dangerously out of touch.
Here’s Texas GOP Congressman Troy Nehls:
Stock indices are at all-time (nominal) highs, and yet…
We are all colonized by wankers.
“The hawkish Fed...” - Kelly Evans
Um, we’ve had six Fed rate cuts in a row, over the past year and nine months, down 1.75%, even as core CPI has been above their made-up 2%-target for over five years...stop it.
Hearing now about oil’s “disinflation tailwind”…
In California, crude oil makes up 43% of the pump price of gasoline.
Economic Terms:
Inflation is when someone is repeatedly stabbing you.
Disinflation is when they stab you a bit less frequently.
Stable Prices is when they stop stabbing.
Stagflation is when you’re bleeding out and lose your job.
Deflation is when rich people get stabbed.
As loud as hell, a ringing bell
Behind my smile, it shakes my teeth
And all the while
As vampires feed…
Here’s an example of the dreaded Deflation:
When I see someone who for years called for higher inflation now saying inflation is too high...
Nick Nemeth
On Kevin Warsh: “The smartest people you know - the Isaac Newton’s of the world - have no idea what to do when shit hits the fan.”
"People just think these Apollo guys are so smart. They are so evil."
“Every time the repo market blows up, a hedge fund is like, ‘oh my god, we’re going to lose all our money,’ and then everyone hears about it in certain circles and then the Fed comes in and just like completely seals it. That guy’s fine, but three more hedge funds are going to step up their risk, right? And it happens every single place. Like every time we bail out people.”
“Can we just clean out a little bit of the greed in the system?”
“Warsh is publicly friends with a lot of people that do not want to be public. The elitist domination of this country is only going to hurt the elitists, and it’s only going to lead us into fascism or communism. Like, you guys are successful. Go enjoy the beach. Stop trying to control everything.”
“The problem is convincing those people that maybe they got a little bit lucky, and they’re not God’s gift to Earth, is hard. I just want to delineate. When I’m talking about the people in private equity that make a lot of money and are potentially going to lose their homes and to take their kids out of private school, I’m not talking about the people that have the 50 million home dollar home in Southampton or Montauk or Nantucket who are pulling political strings behind the scenes that do not benefit them, and they’re seeing one step ahead, and not realizing maybe you should allow some competitive dynamic in, you know, a capitalist democracy, if you will, of ideas.”
Bent: “Valar Atomics is a great example in the last week, able to spin up a nuclear reactor in 9 months, which wouldn’t have happened without private equity, venture capital dollars coming in the room. These things are necessary functions for society and the economy to progress."
NN: ”As long as losses are allowed.”“It’s gotten too crowded. We need losses. We need to test the assumptions and honestly, everyone needs to go to those private equity networking events and just listen. ‘Hey, we create value by buying an accounting firm and a janitor service, and then the janitor service cleans the floor of the accounting firm, and the accounting firm does the taxes for the janitor firm. Value creation, you know, synergies. Synergies, right? It’s insane.”
“The bears are dead. The bears are legitimately dead. You need some bears, otherwise the deer are going to run rampant. If you press the typical private equity or private credit person on assumptions they look like a doe with an oncoming 18-wheeler and they just like default to the same five things that they say justifies their existence.”
"What we need is legitimately free markets where there are losses."
“I like when Bitcoin guys point to the money supply instead of the CPI, because CPI is bullshit, right?”
“I would say the best scenario that I see is a good healthy correction, and based on the levels where we are, that healthy correction might be 40%, you know, across asset prices.”
This is from Matthew Mežinskis, who Marty Bent mentions in the interview:
Marty Bent: Mežinskis has “basically gone back and collected all the central bank data across the world going back like 50 years now at this point. I think starting in 1970 and even before that he’s got some data too, but he’s run the number the global monetary supply over the last 30 years and has a I believe like a 12.5% CAGR rate, so that’s 12.5% new money on a global basis. Adding all currencies together and sort of measuring the growth of the global monetary base over time as a 12% CAGR over 30 years.”
Nick Nemeth: “So maybe 10%, 11%, 12% on equities isn’t so good? I like the idea of investing in businesses and having smart people work for you, but when the money supply is growing so much, it can completely corrupt any investment decision.
Marty Bent: “Well, it inherently does, because you’re forced to think. Patient capital completely leaves the market because it doesn’t have the luxury of being patient, right? And you get this high velocity trash economy where you’re getting money and pushing it into every piece of dogshit that exists because you need to get it in and get that return out as quickly as possible, the function and the viability of the actual business be damned. Like just get it in and get it out. Hot potato.
Nick Nemeth: “Buffett is patient capital. The epitome of patient capital. A lot of the people that think they’re patient capital are now FOMO-ing into quantum computing or something. They’re like, wait a minute, we’ve missed out on the past four years. And that’s really where you get the pain, because you did so good. you avoided it for so long, and now you’re into mega caps or hyperscalers or whatever. And ultimately, it’s unfortunate. It’s unfortunate that so many people have gotten rich being not investors. We’re not compounding on cash flows anymore, right? We’re speculating. It’s a massive speculation economy and the number one way to see the effect of that is like look at Kalshi, look at the younger generations, right? They feel like they missed on Bitcoin. They feel like they missed on all this stuff.”
"A MYSTERIOUS vigilante has been dubbed “Mexican Batman” after chasing down suspected motorbike thieves and duct taping them to lampposts."
“You can be insane and right at the same time.”
Laughin' and clownin'
Just to keep from cryin'
This is not a linear chart: Corning
Bank for International Settlements: Progress and Peril
Historical episodes of investment booms offer instructive parallels (Graph 11.C). The canal mania of the 1830s, the British railway mania in the 1840s, the electrification exuberance of the late 1920s (roaring 20s) and the dotcom boom of the late 90s all shared one common trait: a genuine technological breakthrough that attracted capital in excess of what commercial returns could ultimately justify. These episodes ended with an eventual reversal in investment, inducing economy-wide recessions. The scale and pace of the current AI investment boom accompanied by expectations of large productivity payoffs bear resemblance to these precedents, highlighting potential downside risks in the near term.
Should inflation rise significantly or AI-led investment turn to a bust, the macroeconomic consequences could be amplified by existing financial vulnerabilities. A tightening of policy rates needed to contain inflation could precipitate a sharp pullback in asset prices after a prolonged period of exuberant risk-taking, triggering disruptive macro-financial feedback loops. A reversal of AI optimism could likewise have major financial consequences, given AI firms’ rising leverage and growing footprint in credit markets. Vulnerabilities extend to their supplier ecosystem, including engineering, procurement and construction (EPC) contractors whose balance sheets are comparatively weak, leaving them exposed to any capex pullback by hyperscalers.
Equity valuations are elevated, particularly for firms at the core of AI development. The implied long-term earnings growth for the largest corporations sits well above recent historical benchmarks (Graph 12.A), with US stocks often trading at large premia to peers in other major markets. These implied rates often exceed even the elevated growth that some of the technology firms have delivered in their relatively short lifetimes. As these firms mature and command a larger share of the market, sustaining such high growth could become increasingly challenging.
Sentiment has also been a major driver of current valuations. Risk premia on the largest US stocks have compressed markedly since the Covid-19 pandemic, with the distribution shifting clearly to the left (Graph 12.B). This points to growing investor complacency and reduced compensation for risk-bearing. Post-pandemic exuberance has been largely broad-based across sectors and countries, coinciding with the rapid rise of AI as an investment theme following the release of generative AI tools in late 2022.
A major equity market correction could have larger macroeconomic consequences today than in the past. Household equity exposures have grown over the past few decades, both relative to total wealth (Graph 12.C) and income (Graph 3.C). A large correction in valuations could have more pronounced wealth effects and sharper consumption pullback than in the past. And with US stocks accounting for an outsized share of global equity markets – about 64% of the MSCI Global index – the wealth impact from a US-led repricing could propagate globally.
Financial stability could also be at risk in the event of an AI bust. Fixed income markets are one obvious vulnerability, given the high volumes of debt issued by hyperscalers, AI labs and EPC firms (Graph 13.A). Should hyperscalers slow or halt the aggressive pace of capex deployment, many borrowers across the supply chain could struggle to replace lost revenue and service their debt. The credit spreads of some AI firms have already begun to widen somewhat to reflect this risk (Graph 13.B), even as equity markets continue to price in significant upside gains.
The opacity of AI-sector financing compounds these vulnerabilities. Hyperscalers, chip makers and AI labs are linked through a complex web of private arrangements. The most prominent is circular financing: chip makers and hyperscalers take equity stakes in AI labs or neocloud providers, who in turn commit to multi-year purchases of chips or computing power. Data centre construction is increasingly outsourced to third parties that lease facilities back to hyperscalers on long-dated contracts with embedded exit clauses. The terms of such deals are typically poorly disclosed, with risks of the same asset being pledged multiple times. Together, such arrangements account for a sizeable share of sector-wide financing and forward revenue (Graph 13.C).
Whitney Webb, the best investigative reporter around today, on Polymarket:
We've been quiet recently because Mark Goodwin and I have been working to write the most comprehensive investigation into Polymarket's origins and ambitions to date.
We found that Polymarket's "official" origin story, that Shayne Coplan founded the company alone in 2020 and then built "the company in his bathroom", is a lie. Polymarket really started years earlier as another company called TokenBnk that was deeply tied to Israeli interests, specifically a crypto company founded by Benjamin Netanyahu's niece and nephew. Coplan has actively tried to obfuscate this company from his story and it's not the only thing either.
In Part 1 of this two-part series, we unravel the real history of Polymarket, directly connecting the company to Peter Thiel's efforts to resurrect controversial DARPA programs from its now defunct Information Awareness Office. Polymarket appears to have been chosen by Thiel and his associates to succeed in resurrecting DARPA's Policy Analysis Market where another Thiel-linked company, Augur, had previously failed.
Stay tuned for Part 2, where we explore the current influence of prediction markets and Polymarket, including how an insidious effort to have prediction markets replace representative democracy as a governance model is already being slowly implemented by the White House.
High Strangeness: Sam the Sandown Clown
Ghost or Spaceman ‘73?
BUFORA Journal Volume 06 No 05 Jan-Feb 1978
“I am indebted to Leonard Cramp for advising Mr. Y to write to me concerning his own and his daughter’s experiences and to Mr. Y himself for providing me with a very complete dossier of events. Of necessity these have had to be encapsulated: nevertheless, they make interesting reading. Mr. Y has requested anonymity because of his daughter’s involvement.” — Ed.
“Bright red cherries”
Tuesday, 20 October 1970. Around 7 pm Mr. Y was driving from Shanklin to Ryde via Seaview to see a friend. Passing through the village of Brading, he turned right to St. Helens and then became aware of a large multi-lit ‘aircraft’ to his right about half way between the road and Bembridge Downs. It looked enormous as it flew low over swampy terrain. He stopped the car and watched: the object hovered apparently aimlessly over the swampy margins of the river Yar: a wide ring of seven or more lights could be seen, each of them a large and clearly-defined sphere, ‘like a bright red cherry’ and interspersed with a turquoise and a white light: no sound could ne heard.
Our witness drove on and the object flew parallel. Once outside St. Helens it cut across about 300 yards behind him and dropped slowly, meandering above distant hedges, now appearing smaller with the number of red lights reduced to four which seemed to rotate slowly. Mr. Y again stopped and this time used his torch to signal for some ten minutes, during which time the object weaved backwards and forwards without ‘ settling.’ He then continued on to his appointment: when he reached his destination, the red lights were still there and he left his own rear lights on to face the object. Coming out of the house his friend could see the thing also—playing ‘hide and seek’ between the tree-tops. As he continued on to Ryde the lights were lost to view and our witness saw them no more.
On several subsequent occasions he noticed single balls of red light in the sky which would hang stationary or follow him along as though checking his movements, but on 1 March 1972 a considerably more frightening incident occurred.
“Yellow eyes”
It was between 9 pm and 10 pm and Mr Y was perched on the cliffside at Compton Bay, having been driven there by an unexpected tidal surge seemingly caused, in part at least, by some form of droning underwater craft. From his vantage point, he observed two points of light—yellow— and ‘peering up at me like the eyes of some horrible sea monster’ He guessed the ‘ eyes ’ were not much more than 40 feet away and were just below the surface of the sea, like a sort of peri¬ scope. They disappeared and as the tide gradually subsided, Mr Y was able to get back to his car and drive home.
At no time did he tell his young daughter of anything he had experienced but at the beginning of May 1973, when she was seven years old, she claimed to have had a very weird encounter indeed.
Sandown spaceman or Golflinks ghost?
‘A blue-gloved hand ’
Fay, or so we shall call her, was near Lake Common, Sandown on a Tuesday afternoon about four o’clock with a boy about her own age when they both heard a weird wailing noise not unlike an ambulance siren. They followed it across the golf-links and through a hedge leading to a swampy meadow adjacent to little-used Sandown Airport. The noise ceased.
As they were crossing a wooden foot¬ bridge over a narrow brook, a blue-gloved hand appeared from under the bridge and a strange figure emerged. The figure fumbled with a book, dropped it in the water, then splashed about to retrieve it. The two then watched the figure enter a metallic hut—similar to those used on building sites except that it had no windows. It moved along with a strange hopping motion with knees raised high.
More weird wailing
The children wandered off and were over 50 yards away when the figure (which from now on will be referred to as ‘he’) reappeared carrying a black-knobbed microphone with a white flex attached. The wailing noise immediately returned, this time being so loud that the boy was scared and began to run away: the noise ceased and ‘ he ’ spoke into the microphone and although so far off the children could hear his voice as clearly as though he were right near them. ‘Hello, are you still there ?’ he asked, and in response to what sounded a friendly tone they ventured close enough to speak to the oddly attired ‘ person ’.
Seven feet tall...no neck
He was nearly seven feet tall and had no neck—for his head appeared to be wedged straight onto his shoulders. He wore a yellow, pointed hat, which interlocked with the red collar of a green tunic. A round, black knob was affixed to the top of his hat and ‘wooden’ antennae were attached either side. The face had triangular markings for eyes, a brown square of a nose and motionless yellow lips. Other round markings were on his paper-white cheeks and a fringe of red hair fell onto his forehead. Wooden slats’ protruded from his sleeves and from below his white trousers. His first communication was in writing…
Hello and I am all colours, Sam.
He wrote in a note-book in a large hand, ‘Hello and I am all colours, Sam.’ The boy was hesitant, but Fay read each word as it was pointed to; this was necessary as the words were not laid out in conventional sequence. The children ventured closer and discovered that the creature could talk without the aid of a microphone, though his lips did not move and speech was unclear—rather like that of a person who does not open his mouth properly. He asked the children about themselves so they ventured to ask questions too. They asked about his clothes, which were all ripped, and he told them he only had one set so he could only wear those. Because of his strange white features they asked if he was really a man. The answer was a chuckled ‘ No.’ They also asked if he was a ghost. The vague reply was ‘well, not really, but I am in an odd sort of way.’ ‘What are you then?’ they continued, but only obtained the answer ‘You Know’ with no further explanation. He also said he had no name. There were others like himself, though, and he drew a rough sketch of one of them. He also confided that he was frightened of people and scared they might hurt him. Apparently if attacked he would not fight back.
....into his Hut
At his invitation the children crawled through a flap into his hut, which contained two levels. The lower had plenty of headroom and was ‘wallpapered’ in blue-green and covered with a pattern of dials. It also had an electric heater and simple, wooden furniture. The upper level was less spacious and the floor was metallic. He told the children that he fed upon berries which he collected in the late afternoon: he didn’t say where, but did indicate that he had a ‘camp’ on the mainland he could go to. He also said that the water from the river could be drunk once he had cleaned it. Once inside the hut he removed his hat to reveal round, white ears and Sparse brown hair. Before eating a berry, he performed an odd ‘conjuring trick.’ He placed the berry in his ear, thrust his head forward and caused the berry to disappear and reappear at one of his odd eyes: repeating the process, the berry travelled to his mouth. (A possible explanation could be that he was wearing some kind of protective mask and analysing the berry to check it wasn’t poisonous).
…and Goodbye
The children talked to this strange being for half-an-hour or more, then, after saying ‘Goodbye,’ they rushed across the golf-links to tell the first man they met that they’d seen a ghost: he merely laughed. But the children were convinced of their experience and that the being was either a ghost or someone dressed up.
Fay told her father of her experience some three weeks later, on 2 June 1973. At first he found the story quite unbelievable, but was amazed at the detailed account and Fay’s certainty as to its truth: she was quite upset when he suggested she’d made it up or invented it. Mr. Y saw the boy, but found him not easy to communicate with, though he did get a statement from him verifying that he’d seen it too. Apart from ‘make-believe,’ other possibilities considered included a ‘shared hallucination’ and a deliberate hoax by someone. There was such an extraordinary amount of detail, however, which included the further point that the creature clearly had only three fingers on each blue-gloved hand and three toes on his bare, white feet, making a deliberate hoax somewhat difficult. And, indeed, why go to all that trouble?
Mr. Y tells me that although bizarre, certain elements of the story rang true to him and he also took account of the possibility of some connection with his own previous experiences. Summing up, he says, “I get the impression that Fay was somehow taken into a bubble of alien reality created by this strange personage…he told them he had just made the hut. Also, Fay told me that while they were talking to this ‘ghost’, two workmen nearby were repairing a post. They paid no attention to the weird charade—as though they could not see it.”
“Well, Ghost, Spaceman, Imagination, Hoax or Hallucination?—Take your pick. Just a child’s make-believe ? Perhaps, but there are a number of unusual elements in the story and it is very detailed. Remember too, that quite a percentage of reports of sightings come from children (the Welsh ‘flap’ is a case in point: in particular the ‘ box-dropping ’ incident and the ‘humanoid’ report from Broad Haven School—see Vol 6, No 1). One last point: Mr. Y visited the spot, but could find no metal hut anywhere in sight, nor any indication of one: not really surprising, no matter in what light one views the children’s story, for, to make a comparison, how often are traces found in reported UFO landings? The case rests…”
Typical passage from Guy Playfair’s book, "This House is Haunted: The True Story of the Enfield Poltergeist"
Grosse and the three Harper children stood in the kitchen and listened. (Pete was still away at boarding school). All was quiet. There was no wind or rain outside, and no traffic to be heard. Then, to his amazement, Grosse saw the door of the lavatory open and close on its own. This happened three or four times. At the same time he felt a sudden cold breeze around his legs, and then around his head, This, he knew, was one of the most frequently reported phenomena on poltergeist cases.
Before he had time to write that one down, a sudden movement in the kitchen caught his eye. A T-shirt had jumped from the top of a pile of clothing on the table and fallen to the floor. Nobody could have touched it without him seeing them.
When the excitement had died down, the children got ready for bed. Rose went to the bathroom to clean her teeth, but stopped in the kitchen doorway with a cry.
‘Oh! Come and look at this!’
A mug half full of water was standing in the middle of the kitchen floor. Grosse could not see how any of them could have put it there without being noticed.
As Janet went into her bedroom, a marble slammed into the door beside her, and two more were thrown shortly afterwards. Grosse, who was nearby on the landing, noticed a curious detail; the marbles never bounced. They would hit the floor and stay put as if actually placed there by an invisible hand. Later, I was able to witness exactly the same effect.
Happy 4th of July
Every American should see the The Deer Hunter once. It’s a very long, sad movie, much more about friendship and loyalty and community than another horrific, stupid war.
Whenever Rudy posts, I know I am going to get a fair share of craziness, conspiracy theorists, wrong takes, but also raw truths that hit exactly where they should, however much it hurts. Never stop doing this.
Enough here to ponder while toasting over the hot holiday weekend! Thanks Rudy…excellent as always.