A Quick Look at USA Financial Situation: A Crash is Coming!

 

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The Federal Reserve Has $910 Billion in Losses

 

July 31, 2023 The Federal Reserve-- the most critically important central bank in the world-- is completely, hopelessly insolvent. This isn’t some wild conspiracy theory or overly dramatic interpretation of the facts; we’re extremely data-focused in this organization and base our conclusions on indisputable, open-source figures. And the facts in this case are crystal clear: the Fed’s own financial statements show that their unrealized losses amount to over $910 billion. Given that the Fed only has $42 billion in capital, this means that America’s central bank has a net financial position of MINUS $868 billion on a mark-to-market basis. To understand why, we need a quick review of how bonds work. Most people understand pretty intuitively how investing in stocks works. Share prices fluctuate up and down every day. Bonds are the same way. They also have prices which fluctuate day-to-day, month-to-month, and year-to-year, just like stocks. And one of the biggest influences on bond prices is interest rates. In fact, the cardinal rule in the bond market is that when interest rates go up, bond prices fall. And this makes sense when you think about it. If you own a bond that pays 1%... but suddenly interest rates rise to 10%... then the market value of your 1% bond is going to fall. After all, why would anyone buy a bond paying 1% if they can buy a brand new bond paying 10%? Well, at the start of the pandemic, the Federal Reserve slashed interest rates to zero. And as a result, yields on US treasuries were so low they even went negative for a short time. Banks, large corporations, and even the Fed itself bought trillions of dollars worth of bonds at these record low interest rates. But over the past 16 months, interest rates have risen dramatically. And this means that everybody who bought bonds at record low interest rates during the pandemic is now sitting on deep unrealized losses. And that includes the Federal Reserve. This is exactly what happened to Silicon Valley Bank several months ago. Silicon Valley Bank had acquired more than $100 billion worth of bonds— much of that during the pandemic at record low rates. But when interest rates increased, SVB’s bond portfolio plummeted in value; they racked up huge losses and eventually went bust. When I wrote about this several months ago, I said clearly that if SVB is insolvent, so is everyone else, including the Fed. Now we know the truth: taking into consideration its unrealized losses, the Fed is insolvent by $868 billion. And if they keep raising rates as they did last week, the insolvency will continue to grow. The natural question to ask is, if the Fed is insolvent, why hasn't the financial system crashed? Simple: the financial system is based on perception and confidence rather than reality. And Silicon Valley Bank is instructive here yet again. SVB went bust in March 2023. But it was insolvent as far back as late 2022. SVB was sending financial data to the FDIC and Federal Reserve back in December showing huge unrealized losses. But nobody cared. SVB then publicly released its annual financial report to the market in January 2023; this report once again showed massive unrealized bond losses. And yet, in response, investors gobbled up SVB shares, and the stock price shot through the roof. No one cared about the insolvency. It remained this way for months. Then, suddenly, the bank collapsed virtually overnight. It was so obvious in retrospect... and yet all the ‘experts’, including Wall Street analysts and government regulators, totally missed the warning signs. This reminds me of the cartoons I watched when I was a kid, when Wile E. Coyote ran off a cliff, and only realized when he was halfway across the canyon that he no longer had any ground underneath him. SVB was insolvent in 2022. But like Wile E. Coyote, no one realized it until it was too late. It’s the same thing with the Federal Reserve. They publish financial statements showing extreme unrealized losses... which grow worse with every interest rate hike. It’s so obvious. I’ve been predicting for years that Fed would eventually engineer its own insolvency. Well now they’ve done it. Wile E. Coyote has already run off the cliff. This doesn’t mean that Mr. Coyote will plummet to the canyon floor today, tomorrow, or even next year. But it is very difficult to argue (though some “experts” will surely try) that the mark-to-market insolvency of the largest, most important central bank in the world is somehow a good thing. An insolvent central bank does not make America stronger. It does not make the US economy stronger. It does not make the dollar stronger. This is one obvious reason to consider diversifying out of the dollar, and into an asset that isn’t controlled by central banks. And gold is one obvious candidate to consider. To your freedom,

Simon Black, Founder Sovereign Man

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“I Don’t Think We’ll Make it To 2024” - Reaction To Trump Tape

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Central Bank Digatal Currencies and the Reset Possibilities

 

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The Great Reset (The Coming Economic Crisis) Part 3

 

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The Great Reset (The Coming Economic Crisis) Part 2

 Dennis Edwards: Part Three found here: https://fightforyourfaith.blogspot.com/2020/11/the-great-reset-coming-economic-crisis.html

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The Reset is Almost Here.

 https://www.weforum.org/agenda/2020/06/now-is-the-time-for-a-great-reset/

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Que é PIX? Dinheiro Digital

 

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Former British PM Renews Call For Global Government

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The global food supply chain wasn’t designed for this!

In the early 1980s, doctors and medical researchers around the world were confounded by the growing number of young, otherwise healthy patients who were dying of rare infections that typically only occurred in people with very weak immune systems.

The situation was so alarming that the CDC in the United States set up a special task force in 1982 to study the condition and stop its spread.

By 1983 the medical community had found the answer: they discovered a terrifying new retrovirus that utterly and permanently vanquished the human immune system.

This retrovirus eventually became known as the Human Immunodeficiency Virus-- HIV. And nearly four decades later, while there has been substantial progress in treatment and prevention, there is still no vaccine.

Then there’s shingles-- an infection caused by the varicella-zoster virus-- which is brutally painful for older adults.

GlaxoSmithKline produces a vaccine for this virus called Shingrix that took them more than 10 years to develop and test. And the company has stated repeatedly that they are overwhelmed with demand: hundreds of millions of people want the vaccine.

A few months ago, Glaxo announced that they already reached maximum production capacity of the vaccine, and they’ll have to build a new bioreactor facility just to increase production to ~20 million units per year.

That new facility won’t be online until 2024.

Obviously the novel Coronavirus is different. Its biology is different, the circumstances are different.

But there does seem to be a prevailing attitude worldwide that there will be a vaccine ‘within 12-18 months.’

We can certainly hope so. Fingers crossed.

But this “12-18 month” estimate has been repeated so many times by politicians, reporters, etc. that the public now views it as a foregone conclusion.

And there seems to be zero consideration given to the possibility that, maybe just maybe, vaccine development could take a lot longer.

Or perhaps, even if a vaccine is rapidly developed, that it would take at least five years to produce, transport, and administer BILLIONS of vaccines.

Think about it-- Glaxo will spend the next four years building a new facility just to be able to produce 10-20 million annual units of its Shingles vaccine.

How many biotech facilities worldwide will be needed to produce billions of coronavirus vaccines?

And even if existing production centers are able to quickly switch from producing other drugs and start producing coronavirus vaccines-- what will be the opportunity cost?

If the world manages to be able to produce billions of vaccines, who will be left to produce cancer drugs? Or antibiotics? Or the countless other life-saving drugs that people depend on?

I’m not writing all of this to be negative. Far from it. And it’s important to remember that absolutely every scenario is on the table right now, including positive and favorable ones.

But there are clearly a number of reasons why this pandemic could last much longer than most people probably think. So it’s prudent to be physically, mentally, and financially prepared for that reality.

If this virus has taught us anything, it’s that tomorrow can be radically different than today.

This goes against some of our most basic human tendencies, what psychologists call ‘cognitive bias’.

The bottom line is that our brains cling to the idea that tomorrow is going to be just like today. And we have a very difficult time accepting rapid change.

And even when radical changes do take place and we eventually become accustomed to our new realities, we still cling to the belief that things can’t get any worse.

They can. Again, anything is possible now. All scenarios are on the table. So it would be dangerous to assume that it can’t get any worse, or that the pandemic won’t drag on for a longer period of time.

Back in early February before the virus became a global concern, I suggested that you stock up on food and masks before it all hit the fan.

I want to suggest the same thing again today-- at least the food part.

It is entirely possible that we could see supply chain disruptions. It’s not a certainty—nothing is certain right now. But there are pretty obvious risks.

Chances are high that whatever you ate for breakfast this morning probably originated in some far off place.

The food on your plate can easily travel hundreds if not thousands of miles before it arrives to your table, starting off in a farmer’s field, to an inspection center, and then to the port where it is shipped/trucked/railed/flown to a regional distribution center and ultimately to your grocery store.

The global food supply chain is incredibly complex and not especially resilient; I’ve seen this firsthand over the past few years from running a large agriculture business.

I don’t think it’s likely that the global supply chain would shut down completely. But there’s definitely a risk for hiccups, i.e. slowdowns that cause delays and sporadic shortages.

This kind of scarcity could create some high stress situations in the grocery store; just take a look at Black Friday videos on YouTube to get a sense of what I’m talking about.

It’s best to avoid that kind of environment altogether. So I’d definitely encourage you to stock up on food, and remain stocked up.

This isn’t about being paranoid. We can hope for the best, but still acknowledge this pandemic could last a lot longer, and understand that the supply chain wasn’t designed to function under such stress.

Nothing is certain. But stocking up on food is a simple precaution to offset some obvious risks… which is the cornerstone of any good Plan B.

To your freedom,


Simon Black

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There’s a major sovereign debt crisis looming!

April 2, 2020 - Bahia Beach, Puerto Rico - Simon Black

By the mid 1300s, the Republic of Florence in modern day Italy had experienced one of the greatest economic booms in human history.

In less than a century, Florence had grown from a tiny, irrelevant backwater to become one of Europe’s largest cities and preeminent financial center.

The expansion was truly impressive. Florence’s population had grown 10x. It had become a leading manufacturer in both weapons and textiles.

(Many etymologists believe the word ‘pistol’ is derived from the name of a town near Florence called Pistoia, which was renowned for its quality arms.)

And the city’s innovations in the banking industry were revolutionizing business across Europe.

Florence’s phenomenal economic success is quite similar to what the United States experienced in its early history.

Naturally, though, they managed to screw it up.

At the turn of the century in the year 1300, the Republic of Florence’s public debt was quite manageable at just 50,000 gold florins. That’s less than $100 per capita in today’s money.

By 1338, after a series of costly wars and expensive public works projects, Florence’s debt had ballooned to 450,000 gold florins. Four years later (after yet another war) it had grown to 600,000 gold florins.

This was crippling to public finances given that the government of Florence was paying between 10% and 15% interest on its debt.

To make matters worse, some of Florence’s most prominent banks had made bad loans to foreign governments-- most notably to King Edward III of England, who had suffered terrible defeat against France in what would become known as the Hundred Years War.

Edward would ultimately default on his Italian bank loans, sparking a terrible banking crisis in Florence.

News traveled quickly that the most powerful financial center in Europe was in trouble. The government was near ruin, and the banks were collapsing.

And then came the plague.

In 1348, the Black Death ravaged Florence, wiping out at least 25% of its population. The famed Italian author Giovanni Boccaccio was living in the city at the time, and he wrote about his first-hand experiences in the Decameron:

“[S]uch terror was struck into the hearts of men and women by this calamity, that brother abandoned brother, and the uncle his nephew, and the sister her brother, and very often the wife her husband. What is even worse and nearly incredible is that fathers and mothers refused to see and tend their children, as if they had not been theirs.”

Business and commerce ground to a halt. Tax revenue dried up. Florence’s government was unable to pay its debts. People were wiped out.

As local politician Giovanni Villani described the situation, “Our republic has lost all its power and our citizens have nearly all been impoverished.”

Amazingly enough, Florence’s misfortune didn’t stop there.

In the late 1340s, torrential rains destroyed local agricultural production, resulting in widespread famine.

City managers tried desperately to import food, but because Florence’s credit was so poor, few traders were willing to do business with them.


It was a historic and unprecedented fall from power; Florence had gone from being one of the wealthiest cities in Europe to literally begging for food in less than a decade.

I can’t help but wonder which countries are going to be begging as a result of our modern crisis.

Just like Florence in the 1300s, there are dozens of countries who were already in severe financial hardship going into this pandemic.

Now their tax revenues are dwindling, and they’re forced to spend absurd amounts of money to stimulate their economies.

A few years back our holding company acquired a private business in Australia that, thankfully, is holding up extremely well.

The CEO of that company called me a few days ago to tell me about some of Australia’s stimulus efforts; in addition to waiving payroll taxes, extending tax deadlines, and making direct loans to businesses, the Australian government is now directly subsidizing certain employee wages, up to $3,000 per month.

We’re seeing similar stimulus packages all over the world.

In the United States, of course, the government recently passed a $2 trillion stimulus plan… though I expect they’ll quickly realize that $2 trillion buys them about 4-6 weeks.

So if this pandemic drags on, they’re going to have to spend another $2 trillion, and another $2 trillion after that.

Remember that US government debt increased by $10 trillion in the first few years following the last financial crisis. It certainly seems reasonable to expect a repeat performance.

Some places will be able to afford such prodigious spending.

Norway, for example, has ZERO net debt. Norway’s government has such a massive financial surplus that they could tell every citizen, “Stay home and do nothing for the next six months,” and just write a check for everything. They wouldn’t need to go into debt by a single penny.

Italy, on the other hand, is a basket case.

The Italian government has no savings, and its debt burden even before this crisis was more than 120% of GDP.

Moreover, Italian banks were also teetering on the edge of disaster before the pandemic hit. I suspect most of them are completely insolvent now.

Making any forecast right now is remarkably difficult. Every scenario is on the table, and absolutely anything can happen.

But it seems pretty clear that the most heavily indebted countries are in big trouble… and we may be looking at a major sovereign debt crisis over the next few months.

To your freedom,

Simon Black,
Founder, SovereignMan.com

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The Greatest Depression!

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The Truth Behind the Corona Virus!

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Confinados: Coronavirus, 5G y la Crisis que Viene!

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Banks are going to drown in an ocean of defaults!

Dennis Edwards: 

I am posting this article by Simon Black not to promote fear, but as a good warning to all of us to be prepared. We could be headed for a financial crash and even a total reorganization of the present financial system. We shouldn't be surprised when and if it comes. Many financial forecasters have been speaking about the need for a new monetary system based on a basket of currencies and not just the American dollar. Others are calling for a cashless society and digital money. The worse part of the corona virus may be the impact it has on the world economic system and its reorganization.

James Rickards in his New York Times bestseller, "The Death of Money: The Coming Collapse of the International Monetary System" (2014), gives a good analysis of the current state of the world financial system. He concludes, 

"The coming collapse of the dollar and the international monetary system is entirely foreseeable. This is not a provocative conclusion."

Therefore, we should take heed as the current crisis could be the straw that breaks the back of our present financial system. Let's read what Simon has to say.

March 17, 2020 Bahia Beach, Puerto Rico Simon Black 

On November 6, 2000, then US presidential candidate George W. Bush told a crowd of cheering supporters, “they misunderestimated me.”

Now, if English is not your native language, allow me to clear the air: ‘misunderestimate’ is not a word. But then again, George W. Bush was legendary for hilarious slip-ups like this.

There are entire books dedicated to his ‘Bushisms,’ the ridiculous made-up words and incomprehensible sayings that became routine for the 43rd US President.

‘Misunderestimate’ seems to be a conflation of the words ‘misunderstand’ and ‘underestimate’. And while that was utterly hysterical 20 years ago when Bush first said it, ‘misunderestimate’ may be the most appropriate word of today.

The entire world has completely ‘misunderestimated’ the Corona Virus.

In terms of misunderstand-- that’s obvious. There’s so much that we don’t know about the virus (officially known as SARS-CoV-2) and the disease that it causes (COVID-19).

For example, a group of researchers published a “peer-reviewed” research paper earlier this month stating that the virus had split into multiple strains.

(Peer-reviewed is a type of self-regulation among academics; it means the paper had been evaluated by other experts before it was published.)

But other specialists in the field strongly disagreed with the paper’s conclusions.

Swiss biologist Richard Neher described the research as, “wrong, misleading. . . downright dangerous inferences,” while Australian virologist Ian Mackay called it a “weak paper and poor science.”

Another peer-reviewed study released in the Journal of Medical Virology concluded that the virus originated from snakes. But plenty of experts disagreed with that assertion too.

The scientific community has learned so much about SARS-CoV-2 since it first surfaced a few months ago.

But there’s still so much that’s unknown-- and that makes perfect sense given that this virus is brand new. They’re trying to figure it out as quickly as possible, but that’s naturally going to lead to some disagreements and conflicting conclusions.

But then the Internet takes over, and suddenly everyone’s an expert. People who have no background in medicine and biology Tweet with a level of certainty about the virus that’s just plain silly.

US television personality Jimmy Kimmel joked about this last week, saying, “I speak [about the virus] as if I’ve been a professor of immunology at Stanford for 35 years…”

There’s still so many things that the experts don’t understand, or don’t agree on. The answers are coming, but it’s still early days.

But in addition to misunderstanding, the world has also totally underestimated this virus… and continues to do so.

It started in China back in December, with the government trying to keep the outbreak quiet and taking steps to silence the first whistleblower.

As the virus began to spread, Western nations complacently shrugged it off and assumed it would remain in Asia.

Even the World Health Organization refused to call this a ‘pandemic’ until March 11… only a week ago.

Investors around the world ignored this for months, completely underestimating the massive, worldwide economic impact the virus would have.

Even now, after one of the worst stock market crashes in history, people are still woefully underestimating the effects.

And I’m not talking about the stock market (though there could easily be more losses ahead). I’m talking about something far more serious: banks.

Banks are about to drown in an ocean of defaults. I’ll talk about this a lot more in the coming days, but briefly: 

There’s $250 TRILLION in global debt right now-- mortgages, credit card debt, business loans, government debt, etc. 

And banks own a large portion of that debt. 

This virus crisis is going to trigger a wave of defaults from consumers, businesses, and even governments. 

Think about it: tourism alone makes up 10% of global GDP. Revenue in that entire sector-- hotels, airlines, cruise ships, etc. has collapsed, and many of those companies aren’t going to survive. 

The crash in oil prices is going to wipe out countless oil companies. 

Many large retail chains, which were already struggling in the age of e-commerce, will likely declare bankruptcy. 

Countless businesses around the world have ‘temporarily’ closed due to public health policies, and many of them will go out of business entirely. 

MOST of these businesses owe lots of money to the banks, whether it’s a small business working line, or the $34 billion in debt that American Airlines owes. So the defaults are going to be massive. 

On top of that, millions of people are going to lose their jobs and be unable to make payments on their credit card debt, auto loans, and even mortgages. 

Again, there’s $250 trillion in global debt right now. Total bank capital worldwide is less than $10 trillion. 

So if the coming defaults trigger a mere 4% loss in total debt, it will exceed the entirety of global bank capital. 

And this doesn’t even take into consideration the impact of the $1 QUADRILLION derivatives exposure. 

Misunderestimate? Absolutely.

This looming wave of loan defaults over the next few months could spark a crisis in the global financial system that completely dwarfs what happened back in 2008.

I desperately want to be wrong.

And it’s possible that public health officials radically shift their positions in the coming weeks and tell all the young, healthy people in the world to go back to work, get infected, and start developing immunity.

They may be forced to do this to avoid destroying the global economy.

But at this point, every possible scenario is on the table. Nothing is out of the question… especially when the arithmetic is so obvious.

And continuing to misunderestimate the effects of this virus could be far more dangerous than the virus itself.

We’ll talk about this more in the coming days, along with some sensible suggestions to reduce risk.

To your freedom, 

Simon Black,

Founder, SovereignMan.com

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Corona Virus Update by Vigilant Dollar

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This is going to be a wild ride, and we’ve barely started!

Dennis Edwards: I am sharing the Sovereign Man post as a warning that things could very easily get worst as panic steps in. I would suggest you get your extra supplies in stock before total pandemonium occurs. Stay in prayer and keep close to the Lord. Listen to that "still small voice." Be obedient. Be loving. Be calm. Trust in your God that He is with you and will keep you. In Jesus' name we pray.

March 11, 2020 Bahia Beach, Puerto Rico The year 1348, in the words of historian A.L. Maycock, was the closest that humanity ever came to going extinct. That was the year the Black Death descended on the European continent. And many historians today estimate that it killed as much as 60% of Europe’s population. Italy was hit especially hard by the plague. Port cities like Venice were accustomed to receiving ships from all over the world, and many of them carried the Yersina pestis bacteria which caused the plague. And it was out of this pandemic that the first modern public health measures emerged. Venice created a special council to reduce the outbreak… and one of their first decrees was to ban infected (or suspected) ships from docking. Plus, any traveler who arrived from a plague-infested area was required to isolate themselves for a period for 40 days, or quaranta journi in Italian. This is the origin of the word quarantine—it’s a reference to the 40-day isolation period during Bubonic Plague. Even when the worst was over, though, the effects of the plague were disastrous. In his book An Introduction to the History of Medicine, author FH Garrison described the social impact of the pandemic, writing that family members and lifelong friends abandoned one another in an effort to save themselves from infection. And public gatherings, including church attendance, declined dramatically. The Black Death also ravaged European economies. So many people died that there simply weren’t enough willing, healthy workers. Commerce ground to a halt. Trade was nonexistent. And by many measures, Europe didn’t fully recover its population or economic activity for hundreds of years. What we’re experiencing right now is not going to be anywhere near as bad as that. Not even close. I wrote about this on Monday—the world is not coming to an end despite what you might read on Twitter. But Corona will certainly have a major impact. Just look at Italy. The entire country is on lockdown, practically frozen in time like the ruins at Pompeii. We can’t even begin to grasp how much of an impact that will have on the economy. China-- the world’s second largest economy and biggest manufacturer—effectively shut down last month. That alone is enough to tip the world into recession. Planes, trains, and ships are virtually empty. This is as bad as 9/11 was for the airline industry. Tourism—which comprises more than 10% of global GDP, has completely collapsed. Sporting events and concerts are being cancelled; even the Olympics may be cancelled… all of which will clearly have a nasty economic impact. And we’re barely scratching the surface. You might remember back in late 2018 that the US stock market fell nearly 20%, mostly because the Federal Reserve in the United States had gradually raised interest rates to 2.25%. I mean… 2.25% is so low. It’s a joke. And yet that was enough to cause investors to panic and the stock market to plummet. Apple shares fell 40%. Facebook shares fell 43%. All because people were afraid of a tiny interest rate. Afterwards I wrote about this, saying: “[T]he lesson is, these falls can happen faster and be more severe than anyone expects. We saw some of the most popular and largest stocks in the world nearly get cut in half because the Federal Reserve raised interest rates by a few basis points. What happens when we have a real reason to be worried?” That “real reason to be worried” is now upon us. Stocks are down around 20% from the peak, just like in 2018. And it’s worth considering: if the market fell 20% back in 2018 because the Federal Reserve raised interest rates to a measly 2.25%, it seems like this crash might still have a ways to go. There’s going to be real damage to the global economy. Corporate earnings will fall. Plenty of companies will fail (especially in oil and tourism). The unemployment rate will rise. Tax revenue will shrink and government deficits will skyrocket. And central banks will be completely powerless. Usually when there’s a big crisis, the Federal Reserve steps in and restores some calm. But that’s not happening now. The Fed only knows how to do basically one thing: cut interest rates. Whatever the crisis, that’s their solution. Earlier this month they already held an emergency meeting to cut rates by 0.5% to boost the economy and calm markets. But it had absolutely no effect. Markets continued to fall. People are still terrified. And the Fed may finally realize that their ridiculous interest rate cuts don’t matter. No one cares anymore whether rates are 2% or 1.5%. Rate cuts no longer have a big impact. Not to mention, no interest rate cut is going to make the Corona Virus go away. So there’s really nothing that any central bank can do about this. Bottom line-- this is going to be a wild ride, and we’ve barely started. But as I’ve said before, we’re going to see some extraordinary opportunities come out of this. And anyone with courage and clear thinking will do extremely well. To your freedom, Simon Black, Founder, SovereignMan.com

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Science tells us this is all true!

On April 30, 1934, under pressure from Italian-American lobby groups, the United States Congress passed a law enshrining Columbus Day as a national holiday. 

President Franklin Roosevelt quickly signed the bill into law, and the very first Columbus Day was celebrated in October of that year. 

Undoubtedly people had a different view of the world back then… and a different set of values. 

Few cared about the plight of the indigenous who were wiped out as a result of European conquest. 

Even just a few decades ago when I was a kid in elementary school, I remember learning that ‘Columbus discovered America’. There was no discussion of genocide. 

It wasn’t until I was a sophomore at West Point that I picked up Howard Zinn’sPeople’s History of the United States (and then Columbus’s own diaries) and started reading about the mass-extermination of entire tribes. 

Columbus himself wrote about his first encounter with the extremely peaceful and welcoming Arawak Indians of the Bahama Islands: 

“They do not bear arms, and do not know them, for I showed them a sword, they took it by the edge and cut themselves out of ignorance. They have no iron...They would make fine servants...With fifty men we could subjugate them all and make them do whatever we want.” 

And so he did. 

“I took some of the natives by force in order that they might learn and might give me information of whatever there is in these parts.” 

Columbus had already written back to his investors in Spain, Ferdinand and Isabella, that the Caribbean islands possessed “great mines of gold.” 

It was all lies. Columbus was desperately attempting to justify their investment.

In Haiti, Columbus ordered the natives to bring him all of their gold. But there was hardly an ounce of gold anywhere on the island. So Columbus had them slaughtered. Within two years, 250,000 were dead. 

Now, this letter isn’t intended to rail against Columbus. Point is, I never learned any of this information in school. Decades ago, no one really did. 

But today, people are starting to be aware of what Columbus did. And our values are vastly different today than they were in 1937. Or in 1492. 

Decades ago... and certainly hundreds of years ago... the idea of a ‘superior race’ still prevailed, endowed by their creator with the right to subjugate all inferior races. 

This readily-accepted belief was the pretext of slavery and genocide. 

Even as recently as the early 1900s, there were entire fields of ‘science’ devoted to studying the technical differences among various races and drawing data-driven conclusions about superiority. 

Phrenologists, for example, would take precise measurements of people’s skulls-- the circumference of the head, the ratio of forehead to eyebrow measurements, etc.-- and deduce the intellectual capacity and character traits of entire races. 

Jews could not be trusted. Blacks and Asians were inferior. These assertions were based on ‘scientific evidence’, even in nations like Sweden, the United Kingdom, and United States. 

Today we’re obviously more advanced than our ancestors were. We know that their science was complete bullshit, and our values are totally different. 

There are entire movements now (particularly among university students) to remove statues, rename buildings, and re-designate holidays. 

Frankly this is a pretty slippery slope. If we judge everyone throughout history based on our values today, we’ll never stop tearing down monuments. 

Even someone as forward-thinking as Thomas Jefferson owned slaves. And that’s a LOT of elementary schools to rename. 

More importantly, there will come a time in the future when our own descendants judge us harshly for our short-sighted values. 

Fortunately we no longer have faux-scientists today writing dissertations about racial superiority. 

But we do have entire fields of ‘science’ that will truly bewilder future historians. Economics is one of them. 

Our society awards some of its most distinguished prizes for intellectual achievement to economists who tell us that the path to prosperity is to print money, raise taxes, and go into debt. 

Economists tell us that we can spend our way out of recession, borrow our way out of debt, and that there will never be any consequences from conjuring trillions of units of paper currency out of thin air. 

They created a central banking system whereby an unelected committee of economists possesses nearly totalitarian control of the money supply… and hence the power to influence the price of EVERYTHING-- food, fuel, housing, utilities, financial markets, etc. 

Economists have managed to convince the world that inflation, i.e. rising prices, is actually a GOOD thing… and that prices quadrupling and quintupling during the average person’s lifespan is ‘normal’. 

They’ve also succeeded in making policy-makers terrified of deflation (falling prices) even though just about any rational individual would naturally prefer falling (or at least stable) prices to rising prices. 

Economists make the most ridiculous assertions, like “The debt doesn’t matter because we owe it to ourselves...” as if it’s perfectly acceptable for the US government to default on its citizens. 

Or that the US economy is so strong because the American consumer spends so much money, i.e. consumption (and not production) drives prosperity. 

The public believes all this nonsense because the ‘scientists’ say it’s true. 

The scientists also come up with fuzzy mathematics to support their assertions. Last Friday, for example, the Labor Department reported that the US economy lost 33,000 jobs in September. 

Yet miraculously the unemployment rate actually declined, i.e. fewer people are unemployed despite there being fewer jobs in the economy. 

None of this makes any sense. Fewer jobs means lower unemployment. Spend more money. Print more money. Borrow more money. Debt is wealth. Consumption is prosperity. 

All of this is based on ‘science’. 

We may rightfully take umbrage with the values and ideas of our ancestors. 

But it’s worth turning that mirror on ourselves and examining our own beliefs… for there will undoubtedly come a time when our own descendants wonder how we could have been so foolish.

To your freedom,


Simon Black
October 9, 2017
Sovereign Valley Farm, Chile

Founder, SovereignMan.com

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1999 called, they want their stock bubble back

May 11, 2017 

Dallas, Texas, USA 

File this one away under “Completely Obvious...” 

Last night the parent company of Snapchat reported a quarterly loss of more than TWO BILLION dollars. 

Snapchat, of course, is the photo-focused social networking app that’s adored by tweens and adults who still live with their parents. 

(Talk about a lucractive demographic.) 

The company IPO’d just a few months ago with a market capitalization of $30+ billion despite slowing growth and a history of never turning a profit EVER. 

According to the company’s quarterly report its finances have gone from bad to worse. 

Operating cashflow dropped from negative $92.5 million to negative $155 million; and its total loss for the quarter including stock-based compensation was $2.2 billion. 

It’s incredible that this is the same company that was a Wall Street favorite just eight weeks ago. 

In fact on its first trading day back in March, Snap’s shares surged 44% as investors clamored to own a piece of this loss-making company whose shares confer absolutely zero voting rights. 

After yesterday’s horrific results, Wall Street seems to have woken up, and the stock tanked nearly 25% in after-hours trading. 

It’s amazing that anyone believed in such a fantasy to begin with; it feels like the 1990s all over again. 

During the ‘90s tech bubble, conventional valuation metrics went out the window. 

Back then, Wall Street didn’t care how much money these ‘tech’ companies (i.e. websites) were making. 

They only cared about “eyeballs”, i.e. how many visitors was a website getting? 

If the site traffic was substantial, the company would IPO at some absurd valuation irrespective of how much money they were burning through. 

The classic joke in the ‘90s tech bubble was “We lose money on every sale, but we make up for it in volume.” 

Today we seem to have returned to the same madness. 

Profitability and Free Cash Flow don’t matter. 

All they care about is “Daily Active Users”, and they bet billions of dollars on a company based on this figure. 

In fairness this isn’t really about Snapchat. Maybe the company figures out how to turn things around. Or perhaps they become the next MySpace. 

But Snapchat is far from alone. 

Netflix is another great example; as a consumer I love the service, but as an investor I think it’s a complete joke. 

Netflix hemorrhages cash and hasn’t had positive free cash flow since 2011. 

In fact, Netflix’s operating cash flow losses more than doubled from MINUS $750 million in 2015 to MINUS $1.5 billion in 2016. 

And the business is on pace to post a RECORD LOSS this year. 

Yet in that same period since the end of 2015, the company’s stock price is up more than 40%. 

Why? Subscriber growth. Eyeballs. Daily Active Users. 

Netflix had 74 million subscribers at the end of 2015 versus 99 million today. 

So Netflix appears to be losing money on every subscriber. Yet Wall Street seems to think that they make up for it in volume. 

This really is the same madness from the 1990s. 

Look I’m not here to tell you that Netflix stock is going to drop or that Snap will go bankrupt. 

The larger issue is that financial bubbles tend to pop VERY quickly. 

There is no financial fantasy that can last forever, whether you’re talking about unprofitable companies or governments that lose trillions of dollars. 

Sooner or later you have to turn a profit. You have to generate positive cash flow. You have to balance the budget. 

And as the Snapchat stock collapse shows, when the public wakes up and realizes this may not be possible, the consequences can be pretty ugly. 

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This bubble finally burst. Which one’s next?

Simon Black, SovereignMan.com

April 26, 2017 - Santiago, Chile

Like so many other high-flying Silicon Valley startups, Clinkle was supposed to ‘make the world a better place’. 

Founded in 2011 by a guy barely out of his teens, the company picked up early buzz after proclaiming they would disrupt mobile payments. Or something. 

Silicon Valley venture capital firms were apparently so impressed with the idea that they showered the company with an unprecedented level of cash. 

(Given that investing in an early stage company is high-risk, investors might provide a few hundred thousand dollars in funding, at most. Clinkle raised $25 million.) 

The company went on to burn through just about every penny of its investors’ capital. 

There were even photos that surfaced of the 21-year old CEO literally setting bricks of cash on fire. 

At the end of the farce, Clinkle never actually managed to build its supposedly ‘world-changing’ product, and the website is now all but defunct. 

This is rapidly becoming a familiar story in Silicon Valley. 

For the last 6-7 years, Silicon Valley startups have been able to raise unbelievable amounts of cash. 

Yet so many of those companies haven’t managed to turn a profit. Ever. 

There’s some of the big names like Uber and AirBnb which are supposedly worth tens of billions of dollars despite having racked up enormous losses. 

(Last year ride-sharing company Lyft promised investors that it would cap its losses at ‘only’ $600 million per year. . .) 

But there are countless other examples of startups being anointed with absurd valuations and continually replenished with fresh capital even though they keep losing money... and have no plan to ever make money. 

Snapchat’s investment prospective summed it up best:

“We have incurred operating losses in the past, expect to incur operating losses in the future, and may never achieve or maintain profitability.” 

It’s as if the more money these startups lost, the more popular they became with investors. 

Clearly that was unsustainable. 

In business, profit (or even more specifically, “levered free cash flow”) is the most important metric. 

No company is born profitable; it takes time for entrepreneurs to create and build a financially sustainable business. 

In the meantime, startups sometimes need outside investment capital to keep going. 

Early stage investors take a risk that the company’s founders and management will be able to execute on a plan that turns a big idea into profit. 

But there’s supposed to be a plan. There’s supposed to be an objective to reach profitability as quickly as possible. 

Silicon Valley investment firms ignored this basic principle for years, dumping their investors’ savings down the toilet into loser companies with no hope of profitability. 

It was a bubble, plain and simple... and now that bubble seems to have burst.

According to Dow Jones Venture Source, venture capital firms in Silicon Valley pared down their investments in tech startups by 30% in the last several months after reaching peak insanity in late 2015. 

Unprofitable, unsustainable companies that used to easily be able to raise capital during the bubble years are now struggling to find new investors. 

Many are starting to go out of business. For others that manage to successfully raise more capital, the terms are much more strict and conservative. 

It’s a new reality, and one that makes more sense: lower valuations, a push for profitability, less insanity. 

It makes me wonder, though-- if the startup bubble in Silicon Valley can burst, why shouldn’t the bubble in the larger stock market? 

In some respects there’s very little difference between the two.

The average stock is trading at a record high valuation despite tepid performance.

And some of the most popular companies are as financially unsustainable as Clinkle was.

Netflix might be my favorite example.

The company’s most recent earnings report for the period ending March 31, 2017 shows, yet again, negative Free Cash Flow of MINUS $422 million. 

Not only is that a record loss, it’s 62% worse than in Q1/2016, and over twice as bad as Q1/2015. 

Netflix just keeps losing more and more money. 

Remember, “Free Cash Flow” is a MUCH better indication of a company’s financial health than profit because it takes into consideration all the capital they must reinvest back into the business. 

In the case of Netflix, management must constantly make new ‘capital investments,’ i.e. acquire more content to deliver to their viewers. 

If they don’t keep updating their content library, Netflix will go out of business.

So the company has been steadily accumulating huge losses and burning through cash. 

They make up the shortfall by going deeper into debt, which is clearly unsustainable.

Don’t get me wrong-- as a consumer, I love Netflix.

But it seems nuts that a company with such an unsustainable financial model could be so popular with investors and worth an all-time high $66 billion. 

Something is wrong with this picture.

And these investment fundamentals just don’t seem that different than the insanity from the Silicon Valley startup scene over the last few years. 

The Silicon Valley bubble has already burst. Given so many similarities, it seems foolish to bet that the stock market bubble will stay inflated forever. 

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