Fire in the hole

“Matt Farrell : Jesus Christ. It’s a fire sale.

John McClane : What?

Matt Farrell : It’s a fire sale.

Deputy Director Miguel Bowman : Hey! We don’t know that yet.

Taylor : Yeah, it’s a myth anyway. It can’t be done.

Matt Farrell : Oh, it’s a myth? Really? Please tell me she’s only here for show and she’s actually not in charge of anything.

John McClane : Hey, what’s a fire sale?

Matt Farrell : It’s a three-step… it’s a three-step systematic attack on the entire national infrastructure. Okay, step one: take out all the transportation. Step two: the financial base and telecoms. Step three: You get rid of all the utilities. Gas, water, electric, nuclear. Pretty much anything that’s run by computers which… which today is almost everything. So that’s why they call it a fire sale, because everything must go.”

• From ‘Live Free or Die Hard’ a.k.a. ‘Die Hard 4.0’ (2007), dir. Len Wiseman.

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For those employed in the financial services industry, the events of 2008 came as a rather strident wake-up call. The failure of Lehman Brothers presented a chance to reset the financial system and purge the rot. Needless to say, our monetary authorities blinked, and chose to paper over the widening cracks instead. Matt Taibbi’s review of those events remains the most definitive and uncompromising to date:

“What you need to know is the big picture: If America is circling the drain, Goldman Sachs has found a way to be that drain — an extremely unfortunate loophole in the system of Western democratic capitalism, which never foresaw that in a society governed passively by free markets and free elections, organized greed always defeats disorganized democracy.

“The bank’s unprecedented reach and power have enabled it to turn all of America into a giant pump-and-dump scam, manipulating whole economic sectors for years at a time, moving the dice game as this or that market collapses, and all the time gorging itself on the unseen costs that are breaking families everywhere — high gas prices, rising consumer credit rates, half-eaten pension funds, mass layoffs, future taxes to pay off bailouts. All that money that you’re losing, it’s going somewhere, and in both a literal and a figurative sense, Goldman Sachs is where it’s going: The bank is a huge, highly sophisticated engine for converting the useful, deployed wealth of society into the least useful, most wasteful and insoluble substance on Earth — pure profit for rich individuals.”

Taibbi concentrates his fire on Goldman Sachs, but he could just as easily have written ‘Wall Street’ (sans Lehman Brothers, of course). He concludes:

“It’s not always easy to accept the reality of what we now routinely allow these people to get away with; there’s a kind of collective denial that kicks in when a country goes through what America has gone through lately, when a people lose as much prestige and status as we have in the past few years. You can’t really register the fact that you’re no longer a citizen of a thriving first-world democracy, that you’re no longer above getting robbed in broad daylight, because like an amputee, you can still sort of feel things that are no longer there.

“But this is it. This is the world we live in now. And in this world, some of us have to play by the rules, while others get a note from the principal excusing them from homework till the end of time, plus 10 billion free dollars in a paper bag to buy lunch. It’s a gangster state, running on gangster economics, and even prices can’t be trusted anymore; there are hidden taxes in every buck you pay. And maybe we can’t stop it, but we should at least know where it’s all going.”

The bail-outs of 2008 showed conclusively that the putative regulators of the western financial system had fallen victim to regulatory capture: the presumed corporate regulatees were actually calling the shots, with a quaint legal fiction formerly known as ‘government’ endorsing the process.

The bitter pill that almost everyone in the West has had to swallow in the years subsequent to the Global Financial Crisis is that Wall Street in 2007-2008 (and, naturally, preceding years) was not some fantastic outlier but the role model sans pareil. What became abundantly clear during Brexit, and then the left’s meltdown over the first Trump administration, and then during the confected Covid crisis, was that Wall Street had no monopoly over regulatory capture; rather, the process has now infected pretty much every part of the modern West, whether it be in Big Pharma, Big Media, Big Tech, the military-industrial complex, or what remains, pathetically and vestigially, of higher education and the legal system.

But as the literal as well as moral bankruptcy of the Establishment comes to be revealed, it becomes increasingly difficult to shore up a plainly fictitious narrative. All the resources of the modern surveillance state are brought to bear on dissenters, like Orwell’s infamous jackboot stamping on the human face, forever. The effort is futile, though. As Bret Weinstein has nicely observed, zero is a special number. Unless and until the misinformation panjandrums manage to squash the level of scepticism to absolute zero, there will always be searchers for truth willing to speak out against the evil of our times. And in the true and original spirit of ‘Apocalypse’ (not Armageddon, but an unveiling of what’s real), once you have woken up, you cannot go back to sleep. And every day more and more people are waking up. The eventual freedom of humanity is a mathematical certainty.

Scott Campbell has also written of the spiritual nature of this conflict:

“What I really think, is that the problem is much larger than people can bear to see. The problem with ‘Western’ society (apart from the fact that it only exists apophatically), may be described as having two major components:

• Cultural Marxism completed its takeover of our institutions some time ago when we weren’t paying attention.
• With the decline and now absence of our parent culture, Judeo-Christianity, our society is reverting back to paganism quicker than people have been waking up to the threat.

“Cultural Marxism is functionally the same as revolutionary satanism. This ideology has deliberately destroyed community and family. This happened a long time ago, and we’re only now becoming aware of what we’ve lost because the internet allows more frequent and diverse comparisons. People have so internalised these revolutionary ideals that they believe they are their own honestly gotten opinions, rather than a destructive ideology that has been cultishly thrown upon them by subversives.

“The idea that we even have a ‘society’ when government is placed at the top of the hierarchy, and as a mediator between every human interaction, is an illusion that leads to ever-expanding human misery.

“Paganism is the worship of power. And so is everything that we see in our politics today.”

We are clearly living through dark times – the sort of times that inevitably accompany the terminal stages of a debt-based fiat system suffering from credit exhaustion. Politicians and corporate chieftains of all stripes now seem to be at the ‘looting of the treasury’ stage of the empire’s end. Member of the US House of Representatives Cori Bush – a Black Lives Matter activist, obviously – has, for example, called for a minimum of $14 trillion to be paid by way of reparations to Black Americans. This is the sort of fantasy economics that arises when your national debt already stands at $35 trillion and is growing at the rate of $1 trillion every 100 days.

But what is the value of capital when the very nature of capitalism seems to have mutated and metastasized ? Jeffrey Tucker for the Brownstone Institute:

“What follows is a short list of all the ways in which the US system does not comport with some ideal type of capitalistic marketplace.

“1. Governments have become a main customer of tech and media platforms, instilling an ethos of political deference and cooperation, resulting in surveillance, propaganda, and censorship. This happened gradually enough so that many observers simply did not notice the turn. They held onto their reputation as go-getting capitalist companies even as one platform after another fell to become minions of state power. It began with Microsoft, extended to Google, came to Amazon with its web service in particular, and made its way to Facebook and Twitter, even as taxes, regulations, and intense enforcement of intellectual property consolidated the entire digital-tech industry..

“With Covid lockdowns, all these platforms swung into action to feed public panic, silence dissent, and propagandize for untested and unnecessary shots of an experimental technology. The deed was done: all these institutions became faithful servants of an emergent corporatist empire.

“Now they are full cooperators with the censorship-industrial complex, while the few outliers like Elon Musk’s X and Rumble are facing enormous pressure to conform and get on board. The CEO of Telegram has been arrested simply for not providing a backdoor to Five-Eyes governments, while NATO nations are investigating and arresting for the act of posting disrespectful memes. Digital tech is the most notable and thrilling innovation of our times and yet it has been browbeaten and distorted into a main tool of state power.

“2. The US has a medical cartel that works with regulatory agencies and official institutions to impose poisons on the public, charge outrageous prices, cooperate with business cartels to block alternatives, and promote addiction and ill health. The interventions in the sector are legion, from licensing to employer mandates to mandated benefits packages to government funding to financial support from patent-protected and indemnified pharmaceutical companies that fund and control the very agencies that are supposed to regulate them.

“The signs and symbols of market economics still exist but in a highly distorted way that makes independent medical practice nearly impossible. It’s not socialism and it’s not capitalism but something else, like a privately-owned medical cartel that works hand in glove with coercive power at public expense. And the coercion is not about promoting health but promoting subscription-based dependency on pharmaceuticals, which have evaded normal liabilities that would otherwise pertain in a genuine marketplace.

“3. The US has an educational system that is mostly government-funded, blocks competition, forces participation, wastes students’ time, and pushes a political agenda of compliance and indoctrination. Public schooling in the US has late-19th century origins but the compulsory features came many decades later, alongside bans on teen work, and this later mutated into state-funded universities that enlisted ever larger shares of the population into the system, eventually saddling several generations into vast debt that cannot be paid. The families seeking alternatives end up paying many times over: through taxes, tuition, and lost income. State intervention into educational services is massive and comprehensive, blotting out all normal capitalistic forces and leaving comprehensive state planning..

“4. Agricultural subsidies that build vast industries that crush smaller farming and capture the regulatory apparatus and foist bad food on the public. Anyone in farming knows this. The system has gone the way of these other sectors like tech and medicine to become heavily cartelized and working hand-in-glove with government regulators. Daily small farms are being driven out of business with compliance costs and investigations, to the point that even sellers of raw milk fear the knock at the door. In the name of disease mitigation, millions of chickens are being slaughtered and ranchers fear so much as one positive test of some infectious disease. This of course has further consolidated the industry which is ever more dependent on patented pharmaceuticals, insecticides, and fertilizers, the producers of which also get rich at public expense..

“5. A wildly complicated and confiscatory system of taxation that punishes wealth accumulation and blocks social mobility in all directions. The federal government alone has seven to ten major forms of federal taxation in main categories like income tax, payroll tax, corporate tax, excise taxes, estate and gift taxes, customs duties, and various fees. Depending on how you count them, there are 20 or more. This is remarkable given that only 115 years ago, there was only one source of federal financing: the tariff. Once the government got its fingers into incomes with the 16th Amendment – before that, you kept every penny you earned – the rest followed..

“6. Fiat paper money floating exchange rates (born 1971) give the government unlimited funds, create inflation and currencies that never rise in value, and provide foreign central banks investment capital to make sure international accounts never settle. This new system has blown up government power, which expands without limit, and disrupted the normal functioning of international trade. Treasury debt floated by governments with central banks evades all normal market forces and risk premiums, simply because they are guaranteed by the power to inflate at public expense. This gives the politicians, warmongers, and totalitarians among us a blank check to do their dirty work with endless bank bailouts, subsidies, and other financial shenanigans.

“It is precisely this regime change, together with the manipulation of interest rates, that has given rise to what is called financialization, such that big finance has eaten so much of what was once a healthy industrial sector in the US in which people actually made things for sale in the consumer marketplace..

“But under the dollar-dominated fiat money system, US debt has come to serve as an infinite source of financing for international industrial buildup that has wrecked countless US industries that once thrived. In 2000, $1.8 trillion, or 17.9% of total debt, was foreign-owned. By 2014, this grew to $8.0 trillion, or 33.9% of total debt — the highest percentage in US history, and this has remained so for the last ten years.

“This is not free trade but paper imperialism and it ends in producing a backlash like we see in the US. The solution being offered is, of course, tariffs, which turn into another form of taxation. The real solution is a fully balanced budget and a shutdown of the Federal Reserve’s money spigot but that is not even part of the public conversation.

“7. The court system invites extortionist litigation and can only be fought with deep pockets. Litigation these days is merely about playing the long game in a wicked match that can be over absolutely anything, real or imagined, that any would-be plaintiff can assemble into a court case. Business people, especially small ones, live in daily fear of this constant threat. And this has become the means by which DEI hiring standards have become normalized; they are instituted by risk-averse managers in fear of bankruptcy by litigation. The irony is that the real wrongdoers, such as pharmaceutical makers, are indemnified against legal action, leaving the courts as playthings for the rapacious.

“8. A patent system that grants private industry production cartels and stops competition for everything from pharmaceuticals to software to industrial processes. This is a subject too big for this essay but know that there is a long history of free market thinkers who regarded the patent power as nothing but a tool of industrial cartelization, wholly unjustified by any standard of commercial freedom. “Intellectual property” is not property as such but the creation of fake scarcity by regulation..

“9. As for authentic property rights, they are weaker than ever and can be overridden or even abolished with the stroke of a pen, such that not even landlords can evict tenants or small business can be open for business. Such was common in poorer countries with despotic governments but such a system is now common in the industrialized West such that no business owner can be certain of his rights to his own enterprise. This is the devastating consequence of Covid lockdowns. It is so serious that the various indexes of economic freedom have yet even to adapt their metrics to the new reality. Obviously there is no capitalism as such if millions of businesses can be shut on the whim of public-health authorities.

“10. A bloated federal budget supports 420+ agencies that lord it over the whole of commercial society, ballooning up compliance costs for entrepreneurs and creating vast uncertainty about the rules of the game. Slight attempts at “deregulation” cannot begin to fix the core problem. There is no product or service made in the US that is not subject to some form of regulatory diktat. If one happens to come along, such as cryptocurrency, it is beaten to pieces until only the most compliant firms survive the market competition. This has been going on in the crypto space since 2013 at least, and the result has been to convert a disruptive and stateless tool into a compliance-obsessed industry that serves mainly the incumbent financial industry..

“I’m not sure that such a system has a precise name in the 21st century unless we want to go back to the interwar period and label it corporatism or just plain-old fascism. But not even those terms fully fit with this new mode of surveillance-based and digitized despotism that has descended on the US and the world, one that provides healthy rewards for private enterprise that links up with state power and brutal punishments for those enterprises which do not.”

As we have written before, we are not politicians, we are asset managers, ‘simply’ trying to steer our clients’ valuable capital through the challenges of the present and the storms ahead. More than ever before, that now necessitates avoiding state and governmental interference wherever possible and also the avoidance of governmental ‘assets’ (debt liabilities that we strongly suspect will end up being inflated to worthlessness as the fiat bonfire takes hold). It requires a focus on true economic value, the tangible, and the real. The good news is that from the perspective of the non-sovereign institutional and private client investor, the upsurge in the likes of gold in paper money terms has only just begun, with – so far – almost no investment participation from either group. There is still time to board this train.

There is also risk in allowing oneself to be overwhelmed by the apparent threats of our time. Whether in matters of business or investment, strength of mental attitude invariably accounts for the difference between winners and losers. In this respect, we recommend the excellent podcasts of David Senra, ‘Founders’, and we close this week with a quotation from one of his subjects, the American industrialist Henry J. Kaiser:

“Problems are only opportunities in work clothes.”

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As you may know, we also manage bespoke investment portfolios for private clients internationally. We would be delighted to help you too. Because of the current heightened market volatility we are offering a completely free financial review, with no strings attached, to see if our value-oriented approach might benefit your portfolio – with no obligation at all:

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Tim Price is co-manager of the VT Price Value Portfolio and author of ‘Investing through the Looking Glass: a rational guide to irrational financial markets’. You can access a full archive of these weekly investment commentaries here. You can listen to our regular ‘State of the Markets’ podcasts, with Paul Rodriguez of ThinkTrading.com, here. Email us: info@pricevaluepartners.com.

Price Value Partners manage investment portfolios for private clients. We also manage the VT Price Value Portfolio, an unconstrained global fund investing in Benjamin Graham-style value stocks.