Why The Global Economy Is A “House Of Cards” – Part 2

Leaking blood into a pool of sharks with laser beams strapped to their heads rarely remains unpunished. And so it is for Sam Bankman-Fried today.

Yesterday he was worth 16 billion…

Today just a few hunnerd mil.

Life comes at you pretty fast sometimes…

Here’s what happened, and also why THERE IS MORE MONKEY BUSINESS to come.

Try to follow along here – it’s a sordid tale but well worth the read:

FTX printed its own token, FTT.

Gave that token to its hedge fund Alameda.

Alameda used that FTT as collateral to borrow stablecoins.

And then a copy of Alameda’s balance sheet got leaked…

  • Total assets: $14.6 billion. This is comprised of $5.8 billion FTT token, $1.2 billion Solana token (SOL), $3.37 billion in unidentified “crypto held,” $2 billion in “investments in equity securities.” This leaves roughly $2.2 billion in assets. According to our sources, hundreds of millions of dollars of the remaining assets are comprised by Alameda’s holdings of the Serum (SRM), Oxygen (OXY), MAPS, and FIDA tokens, all of which are from other SBF projects. According to this balance sheet, Alameda only had $134 million in cash on hand in June 2022.
  • Total liabilities: $8 billion, of which $7.4 billion is “loans,” with another $292 million worth of FTT token owed. The remainder is unidentified by the Coindesk article.

Here’s the thing… having 5.8 billion worth of FTT isn’t worth a damn thing since that’s 180% of the circulating supply.

If you try and sell, you will crash the price to zero.

It gets worse….

93% of the entire FTT market cap is help by only 10 addresses.

And analysis by blockchain analytics firm Messari shows there are only 180-200 addresses actively transacting in FTT tokens.

WTF!

The bottom line is that any coin that you cannot sell without driving the price to zero (because there are no real buyers except other related-assholes in on the joke) isn’t worth a thing.

Lucky Alameda is diversified… into $321 million worth of Serum (SRM), MAPS, Oxygen (OXY), and Bonafida (FIDA).

Worthless failed shitcoins, all.

So yeah, that’s beyond economic mismanagement into real fraud territory… so let’s think about the next shoe to drop.

This wasn’t some Ponzi-coin from Korea. This was the 2nd largest exchange, the “leader” in the drive to regulate crypto markets, and the single biggest political donor in the USA.

It’s a bad look for the crypto industry.

And consider the price action.

We went sideways for 5 months, until both bulls and bears exhausted each other to a standstill.

Everyone who was capable of buying the dip has already bought.

There aren’t many buyers left. (Except for our Cryptonaissance clients, thankfully in cash since BTC $25K)

(BTW I caught plenty of grief from customers when our Cryptonaissance system switched to cash here).

Now, I do NOT expect this level to hold.

This is the crash I’ve been warning you about for months.

The crash that ENDS the bear market.

Remember bear markets end in despair.

I think there are other crypto firms who will also be functionally insolvent right now.

There will be more carnage to come. We have been sideways for 5 months, it’s reasonable to expect another few weeks at least of downside.

Gentlemen, prepare your stinkiest stink bids.

The sale of the century is coming up!

But I digress…. What I really wanted to talk about today was Bill Clinton.

He has a lot to answer for (aside from the B.J.s – which I can’t really hold against him)

You see, Slick Willie knew that getting elected was “about the economy, stupid!”

His idea, correct as it turns out, is that voters will forgive just about anything if you make them rich.

And BOY did he set out to do just that.

Firstly he signed the NAFTA (North American Free Trade) agreement, which allowed companies to outsource their manufacturing to Mexico.

And then he let China into the World Trade Organization.

This was a mixed blessing.

Consumers could buy crappy products made in China very cheaply.

US corporations massively expanded profits by outsourcing manufacturing at a fraction of the cost.

And between 1999 and 2011 six million US manufacturing jobs were lost.

So the middle class got completely destroyed.

(Which started the political polarization that you see reaching it’s endgame now).

The hope was that China’s political system would open up, they would become good capitalists and we all live happily ever after.

Of course China didn’t do any of that.

They stole our inventions through mass espionage.

They ignored copyright and trademark laws, copying all our products.

They flooded the world with cheap exports in violation of global trade rules.

They used their new prosperity to institute the largest Orwellian surveillance state ever created.

And they STILL banned Western firms from doing much business in China (they won’t let facebook or google in) unless they hand over the technology they use.

Hardly fair but Western firms played along hoping for a big pay off.

But here’s the thing.

Manufacturing stuff got cheaper and cheaper every year…

But good old Nassim Taleb (the black swan guy) was way ahead of the curve.

He was sounding the alarm years ago that our globalization and the interconnectedness of our economies MULTIPLIED the effects of any Black Swan event.

So when the pandemic hit, the supply chain interruptions ruined the whole world.

Turns out that globalization creates interlocking fragility in the global economy, while reducing volatility and giving the APPEARANCE OF STABILITY.

And now that the chickens have well and truly come home to roost countries everywhere are realizing how stupid it is to rely on someone else to sell you stuff you need.

Germany closed down their nuclear plants because they thought they could just rely on cheap gas from Russia (dumbasses)

Russia thought they could make cars and planes until the USA banned them from buying the microchips they need.

Which they’ll buy directly from China moving forward.

China doesn’t (yet) make their own high end microprocessors (only simple stuff), but they get just about everything they need through their Taiwanese supply chain. Oops!

Bottom line: This 20 year trend of offshoring manufacturing capacity isn’t just over… it is REVERSING, HARD!

But out of chaos comes opportunity… and there are sectors primed to take full advantage of the re-onshoring gold rush.

Which we will be exploring at our Wealth Creation Summit (register HERE if you haven’t yet)

I’ll finish today with one more of the megatrends which has been juicing corporate profits and stock prices…

In the last 50 years corporate taxes have fallen by a whopping 60% – gee I wonder why 😉

This was obviously kept and not passed onto workers… which juiced the value of stocks…

That is, until the pandemic, when workers quit/stayed home and for the first time in decades workers got a fair day’s work for a fair day’s pay.

I hope you can see that yet again… the megatrend has not just stopped but is in the process of reversing.

Lower corporate profits (more wages, higher taxes) is going to mean a slowdown.

The hyper-growth of the last few decades is literally unsustainable.

And there are going to be some BIG LOSERS (like bonds for example)

But also some big WINNERS.

I’d like to invite you to our Wealth Creation Summit on Thursday 17th November at 6pm EST. (That’s Friday morning for Asians and Australians)

I’ve gathered a who’s who of my pro trader friends for this roundtable, fleshing out the big issues which are going to make or break our investing results for the next decade.

We are going to discuss what I’ve talked about in my emails over the last few days (click HERE and HERE if you missed them)

The big megatrends in globalization, lowering taxes, interest rates, inflation and demographics have ALL stopped and reversed.

It is absolutely critical that you forget what you thought you knew about investing and get up to speed on the new paradigm.

Your financial future depends on it.

So register HERE

Michael

P.s. We are going to launch a new, advanced course on wealth creation that I’m thrilled to bits about. No, you can’t buy it yet (I’m waiting until Black Friday so I can offer a massive discount) but if it sounds interesting to you, just hit a reply to the mikesneweconomybootcamp@gmail.com and I’ll give you a sneak preview.

  • Mike
  • last year

About the Author

Hey there, I am one of the founding members of Red Pill Quants. I used to work as a systems engineer in Silicon Valley until I left the industry in 2008 to become a full time quant trader. It's been fun ever since.