We surely are not surprised. Donald Trump is off to an exceedingly bad start, chasing hobgoblins by the name of Canada, Greenland and Panama. Yet these utterly insensible digressions are just more proof he has no coherent game plan to contend with the fiscal and financial time bombs that are going to be detonating all around him after January 20th.
The Great Money Bubble...
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We are referring to the mother of all fiscal crises that will be triggered within months when the US Treasury runs out of both cash and borrowing authority under the $36.1 trillion reinstated debt ceiling. And that may not even be the first inning. The stock market has now reached a point of such extreme “irrational exuberance” that even Alan Greenspan couldn’t have imagined it when he invented the term several decades ago.
For want of doubt, consider what has happened to one of the shiny objects in the crypto space in recent weeks. We are referring to a financial product aptly called “Fartcoin”, which is a newly minted cryptocurrency most assuredly worth $0.000. That is, it pays no interest or dividend, earns nothing, has a zero use case and exists solely to absorb some of the oceanic volume of speculative credit the Fed has unleashed upon the financial system.
Nevertheless, in a matter of weeks Fartcoin has skyrocketed from an initial market cap (ICO) of $3 million on October 18 to a recent peak of $1.5 billion on January 3rd. That’s a 510X gain in barely 70 days, including weekends and Christmas.
Fartcoin Market Cap Since October 18, 2024
As the astute folk at QTR put it,
……Fartcoin is now worth more than around 1,000 companies in the Russell 3000 Index, — companies with products and services, many of which are generating cash, others that are on a path to generating cash.
Fartcoin’s 2,940% ascent since November 2024 dwarfs gains in almost all other assets — the risk averse and the risky. Since November 4, 2024, the S&P 500 has risen approximately 5.7%, while long-term Treasury bonds, oil, and gold have experienced slight declines.
Cryptocurrencies are about as speculative a financial asset as you can put money into right now. I’ve written extensively about how I think it’s the lowest-hanging fruit on the risk tree and how the asset class will likely be the first to dive and deleverage in the event of a market crash. Its use case remains uncertain over the long term, and there are infinite layers to the ecosystem — populated by got-rich-quick techno-dweeb ultra-billionaires with questionable personal hygiene and addictions to World of Warcraft — that have proven to be riddled with fraud and abuse.
Out of this entire multi-trillion-dollar crypto universe, Fartcoin — admittedly created as a joke — may be the most obviously useless and meaningless collection of code ever assembled. Yet, because it has a funny name, it has somehow commanded a billion dollar market cap. In other words, most people are knowingly investing in an asset guaranteed to be worth nothing, provide no yield, and offer no use, under the pretense that someone else will buy it at a higher price so they can make money off of it. With stocks, people have an excuse — maybe they don’t know equity valuation or P/E ratios. With Fartcoin, there’s no hiding it — everyone in the world, including children, should know it’s a ruse.
More than ODTE options, more than unlimited leveraged ETFs, and more than the GameStop saga, Fartcoin has become the financial asset manifestation of exactly what our market has become: Arkham Asylum, bursting at the seams with lunatics laughing like unhinged hyenas and unproductive assets chased by unsophisticated investors who, through the miracle of legalized sports betting, Robinhood, and “working from home”, have developed into full-on gambling addicts.
And, no, Fartcoin is not some kind of meme-driven outlier, disconnected from the $100 trillion securities markets on Wall Street. To the contrary, it is ground zero—the epicenter of the massive financial bubble fostered by decades of egregious money-printing by the Fed and its fellow-traveling central banks around the planet.
Indeed, the S&P 500 itself is up by 25% in the past year and trades at 25X earnings for no reason whatsoever—except for the ingrained belief that the Fed is launching a new round of deep interest rate cuts and aggressive money-printing. In that context, the Fartcoin rip is just the cherry on a stock market ultra-bubble that is now virtually guaranteed to fail and crash.
That’s because the Fed, in effect, called a rate-cutting party and no one came. Since September 22, the fully administered, pegged and utterly artificial Fed funds rate may well have dropped by 100 basis point, but the bond pits have spoken otherwise. The 10-year UST— the veritable value fulcrum of the entire global financial market—has gone in the opposite direction, rising by 100 basis points.
More crucially, it is heading far higher soon, as it becomes ever more apparent that front-running bond speculators are not coming to the bond-buying party; foreign government marks have finally figured out that what Washington did to the Russian central bank can happen to them; and the Fed itself is still selling, not buying, government debt because inflation is not receding back to 2.00% per its command.
In short, if there are no incremental buyers at today’s 4.71% yield on the 10-year UST, the message is abundantly clear—even to the inveterate speculators at the stock trading posts. To wit, with upwards of $10 billion of new Treasury debt to finance every day and Washington fixing to degenerate into a debt-ceiling stand-off crisis like never before, today’s ultra-extended PE multiples are heading for a severe haircut.
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And we do mean scalping. As of today, the Russell 2000 is trading at a hyperbolic 34X and the NASDAQ 100 is right behind at 32X. Yet this is all at a point where earnings have nowhere to go except down and PE multiples have no place to land except lower.
We do not pretend to be clairvoyant enough to know what the catalyst will be that pricks the bubble. But the markets have every bit the feeling of March 2000 when the stock indices peaked on March 10 and then proceeded to plunge by 30% during the next 18 trading days.
Needless to say, with a one-vote margin in the House and a GOP Senate still run by RINOs and independent contractors, the Donald will have a lot more to worry about than who controls the 50,000 souls, massive ice packs and speculative estimates of oil and minerals in Greenland.
Yes, there are estimates that there are 100 billion barrels of potential oil reserves on the iced-over shelf of Northeast Greenland, but if they end up being produced at ultra-high investment cost and risk by foreign speculators, so what?
The estimated oil and gas resource reserves of the entire planet are about 2.1 trillion BOE, meaning that Greenland might host virtually the highest cost 5% of the total. That’s surely not worth a war with Denmark, a high tariff or even a diplomatic tempest in a teapot.
What the Donald better do real quick is start getting in-depth briefings from his DOGE teams. By now they have surely discovered that doing anything meaningful about the impending $2 to $3 trillion per annum deficits involves opening a political can of worms that the Donald has never even remotely imagined.
Reprinted with permission from David Stockman’s Contra Corner.
