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Central Banks and Their Failed Policies

08-09-2019

Last night Uber reported, and it was as good an example of what the failed policies of NIRP, ZIRP, and QE lead to as any. I'm sure many readers of this column love using Uber, as I do, but to value an entity at $70 billion that loses $5 billion in one quarter, with the kind of market penetration it already has, just shows you what misallocated capital can do.

Taken For a Ride Quite frankly, there are even more egregious examples, although less well known, and perhaps not as big. In other words, there are plenty of other companies with smaller market caps that have no hope at ever achieving reasonable levels of profitability commensurate with their valuations, but I like to use Uber as an example because of its ubiquity.

Meanwhile, these same failed policies are causing problems in Europe, where banks appear to be slowly melting down. God knows what people are going to find out in a few years about the dramatic problems these policies have caused for anyone with long-tailed liabilities, such as pension plans or insurance companies.

Another way to look at it is, how can something be deemed successful when you start it thinking you can reverse it whenever you want, then 10 years later you never do? I'm referring to the fact that Draghi hasn't raised rates once, and he's already talking about going back to the printing press.

That's a Lot of Priuses Of course, the metals market has finally woken up to the fact that these policies don't work as intended. Furthermore, precious metals can now be regarded as currencies with a relatively high yield (that is, yields aren't negative), which is part of what has put a bid in them. In particular, it is pretty remarkable to think that you could trade Uber for all the silver available in the world (not in religious artifacts) and still have $10 billion or $20 billion left over in pocket change to have fun with. I could sit here all day and share examples of the lunacy, but I think everyone gets the picture.

Turning to the market action, a weaker yuan and saber rattling over Huawei conspired to send the tape well over 1% lower through midday. In the afternoon, though, the market bounced back once again to close with a loss of less than 1%.

Away from stocks, fixed income was a little higher and green paper was a little weaker. On that note, Trump, after having complained regularly about a strong dollar, made comments today that he didn't intend to weaken the dollar because he didn't have to. I'm not sure what he meant, but that did cause a little motion. He definitely does want a weaker dollar, and if he decides that's what he needs he will figure out a way to talk enough trash to get it to work its way lower. Given how many speculators are long the dollar on the (to my mind) absurd shortage thesis, that could cause a fair bit of disruption.

As for the metals, they traded on both sides of unchanged before closing kind of flat, and the miners did as well.

At a Loss For Words Last night Wesdome reported and its results were just fine. I was sort of amazed that there were only three questions on the conference call. If this were any kind of a tech or biotech stock that had done as many remarkable things as Wesdome, there would have been about 20 questions and the dead fish would be falling all over themselves upping their price targets.

I'm not saying the targets should necessarily have been lifted in this case, but the quality of the research in the mining sector is absolutely pathetic. I guess that shouldn't be too shocking given the nature of the last five or six years.

Housekeeping As a reminder there will be no Rap next week, as I will be traveling, but Ask Fleck will run more or less as usual.

Positions in stocks mentioned: long WDOFF.