Tag: economics

Substack Submerging

As I mentioned on a previous Darkstream, the end of the cult of free and the decline of the equity markets is not looking good for companies dependent upon startup financing to leverage their growth.

Substack is desperate, huh? That’s what I understand from their fundraising email, anyway. They’re now hitting up retail investors for millions of dollars after they failed to raise last year.

After certain recent historical events, I have become skeptical of the term “financial inclusion,” a set of buzzwords for making financial services more available to people who are not stratospherically rich. Maybe my cynicism is because Facebook tried to launch a stablecoin for the “unbanked” that you nonetheless needed (at least, according to the now-scrapped plan) a credit card to use. Maybe it is because Robinhood made a big fuss about how many brand-new retail investors it brought onto its gambling platform. Or maybe it’s the proliferation of buy now, pay later services from the likes of Klarna, Afterpay, and Affirm (and now Apple.)

As we all know from reading our 10-Ks, past performance is not indicative of future results

Anyway, Facebook’s stablecoin play failed and was sold for parts. Robinhood’s share price has fallen by a third in the last year. Oh, and Gen Z’s credit card debt is growing fast and furious. So yeah, when someone talks about financial inclusion, I assume the game is afoot…

You see, the last time Substack raised, the Fed hadn’t started its rate hikes yet. Startups — like Substack — are particularly vulnerable to being squeezed when the interest rates go up. It gets harder to raise money because conservative investors can simply invest in safer assets.

Where’s the money, Lebowski?

And during that 10-year period I cited with those outsize returns, interest rates were low and valuations of private companies ballooned. Now, with interest rates coming back up, those balloons are popping. Some VCs are slicing valuations by as much as 95 percent. There may be even more write-downs coming. And following the collapse of Silicon Valley Bank, there’s a considerable amount of uncertainty in the VC world.

Substack certainly knows this. It tried to raise last year, seeking $75 million to $100 million from investors. But it had revenue of only $9 million in 2021, and a sky-high valuation on relatively little revenue was not the vibe in 2022. The company gave up. On its Wefunder page, the company says that the pre-money valuation on Substack is now $585 million, a 10 percent decrease from 2021.

Any time you see a new platform explode out of nowhere, you can be assured of two things. First, there is hundreds of millions of VC dollars behind it. Second, they are paying the creators a LOT of money to join the platform. Third, the money being made by the creators on a monthly basis is NOT all coming from the subscribers and supporters.

Remember, Clown World is ALWAYS fake and gay. It always attempts to substitute the inorganic for the organic. You just have to know where to look in order to see through the illusions.

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The End of the Cult of Free

The Cult of Free was always fake, gay, and propped up by Clown World. And now it is beginning to come to an end:

Billionaire Elon Musk is further cutting the amount of features that Twitter users can access on the platform for free. From April 15, users who do not pay for Twitter Blue – which costs £11/month for Android and iOS – will no longer be able to vote in polls, Musk has said.

They also will no longer have their tweets appear in the ‘For You’ tab, which shows popular tweets that are boosted by an algorithm.

Musk said the changes will stop ‘AI bot swarms taking over’ the site, although he stopped short of explaining exactly how.

The CEO – who purchased the social media network in October – said that paid social media will be ‘the only social media that matters’. ‘[This] is the only realistic way to address advanced AI bot swarms taking over. It is otherwise a hopeless losing battle.

He’s absolutely correct. AI bots will utterly destroy every free platform in short order. This is just the beginning, and it won’t be long before Twitter blocks all free posting access.

It’s not even remotely surprising that the major platforms are beginning to go the way of Unauthorized, Arktoons, and Gab. I understood – and I explained to Andrew Torba – that the Silicon Valley Method of propping up a platform with investment capital, giving away the product for free to amass eyeballs, then trying to go public or get acquired before the investment capital ran out was a stupid and short-sighted strategy.

And, of course, the method only ever worked for those who were willing to sell their souls.

So the end of the Cult of Free was always inevitable; what is more interesting about Musk’s announcement is that it signifies that the seemingly-endless resources of Clown World are beginning to run out.

This is precisely why it is so vital to subscribe to projects such as Arktoons, UATV, and the Library. The more who do, the more that we can collectively accomplish, even on a shoestring.

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NOW They Protest?

Germany goes on strike over insufficient wages.

Airports, bus stops, and train stations were at a standstill across Germany on Monday, as more than 400,000 public transportation employees took part in a 24-hour strike. The workers are demanding pay rises to compensate for inflation, which has soared in Germany since last year.

The strike began at midnight and is set to end at midnight on Tuesday. Eight major German airports were affected, with the German Airports Association estimating that around 380,000 travelers were left stranded. Munich Airport shut down entirely from Sunday onwards, with all flights canceled and its terminal deserted.

Deutsche Bahn said on Monday that all long-distance services were canceled, while regional services were only restarting in some areas by Monday evening. Trams, buses, and metro lines were also affected throughout the country.

And yet, the Germans persist in welcoming refugees, re-electing politicians who enforce pro-US policies that murder their economy, bailing out their banks, mass-vaccinating themselves, transferring $62 billion and counting to Israel, and generally supporting Clown World. Of course their economy is in shambles! What other outcome could they possibly have expected?

This industrial action demonstrates a complete inability on the part of the German people to grasp the connection between cause and effect.

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If the Dollar is Their Superpower

Then their global hegemony is rapidly coming to an end:

The dollar is America’s superpower. It gives Washington unrivaled economic and political muscle. The United States can slap sanctions on countries unilaterally, freezing them out of large parts of the world economy. And when Washington spends freely, it can be certain that its debt, usually in the form of T-bills, will be bought up by the rest of the world.

Sanctions imposed on Russia for its invasion of Ukraine combined with Washington’s increasingly confrontational approach to China have created a perfect storm in which both Russia and China are accelerating efforts to diversify away from the dollar. Their central banks are keeping less of their reserves in dollars, and most trade between them is being settled in the yuan. They are also, as Putin noted, making efforts to get other countries to follow suit…

America’s politicians have gotten used to spending seemingly without any concerns about deficits — public debt has risen almost fivefold from roughly $6.5 trillion 20 years ago to $31.5 trillion today. The Fed has solved a series of financial crashes by massively expanding its balance sheet twelvefold, from around $730 billion 20 years ago to about $8.7 trillion today. All of this only works because of the dollar’s unique status. If that wanes, America will face a reckoning like none before.

The decline of the US financial superweapon will be exacerbated by the emergence of China as a financial safe harbor, at least for those who have not spent the last decade attacking it or attempting to subvert it.

The unfolding banking crisis in the US and Europe could highlight China as a “relative safe haven,” economists at Citi said in a note seen by CNBC. The Chinese economy could see accelerated expansion this year, giving the country a “hedge” for growth while economies in the US and Europe face heightened risk of financial disruption, according to the note.

It’s going to be interesting. That’s the only thing we can know for certain. And both one’s investment and consumption should be directed toward hard assets that will hold their value regardless of price levels.

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The Mistakes of Empire

I’ve repeatedly observed that both Russia and China have learned from the mistakes of previous regimes, as well as from those of the imperial USA. Here is evidence that Russia’s current leadership is actively aware of the mistakes made in their Soviet past:

Russia’s economy will not be reduced to the defense industry alone, despite the conflict with Ukraine and Western sanctions, former President Dmitry Medvedev told journalists on Sunday. Imbalances in the economy will not be allowed to develop, he said, adding that the country is unlikely to suffer the fate of the Soviet Union.

“There is currently no threat of economic militarization in a way, in which it existed [in the USSR] in the 1970s and 1980s,” Medvedev said. The former president argued that the Soviet Union gave too much priority to the defense industry. To avoid an imbalance, “priorities just need to be set correctly and major macroeconomic indicators monitored,” he added.

Russia does actually need to boost its defense industry, he said, adding that it is necessary to “lay the groundwork for the future” even after the Ukraine conflict ends. However, taking these steps will not affect other economic sectors, he believes.

The USSR lacked a market system and also the strong consumer goods sector that modern Russia has, Medvedev said, adding that had the West imposed sanctions on the USSR at that time, “we would have had a hard time.”

Now, Russia’s “market does not feel any colossal downturns even despite the sanctions,” the former president said. He lauded Russia’s agriculture sector, saying not only does it allow Russia to meet its own food supply needs, but also enables it to “feed others.”

And they’re clearly also acutely aware of the vulnerabilities created by blindly adopting the false “free trade” doctrine of Western liberalism: China and Russia top list of states with largest trade surplus – study

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Preemptive Bank Bailout

Now that the big banks have been given a no-ceiling deposit guarantee, the smaller banks need to be given the same guarantee before all their big deposits are transferred to the guaranteed banks. And so the contagion spreads.

Another 50 regional banks in the US could fail in the US banking crisis if authorities do not take immediate action to resolve structural issues in the sector, according to former vice-president at Lehman Brothers Lawrence McDonald, in an interview with RIA Novosti.

He said, “Policy-makers will most likely be forced to introduce a much larger withholding to maintain outflows of deposits from bank accounts that significantly exceed $250,000.”

The global financial crisis of 2008 began with the collapse of Lehman Brothers, which seized up funding markets, and prevented global lenders from getting ahold of US dollars.

McDonald says the problems today are very similar to the problems which preceded the collapse of Lehman and triggered the 2008 financial crisis.

He added that now it is expected US regional banks will lose “hundreds of billions of dollars” in deposits, as those funds are moved out to larger lenders believed to be “too big to fail,” as well as more secure US Treasuries.

He noted US authorities will have to massively increase the guarantees to US deposits over the present guarantees.

They can methodically merge all the banks that fail with the survivors until there is only one massive bank. But what will they do when that one final bank finally, and inevitably, fails. Because the problem is systemic, no credit system can survive indefinitely as the math guarantees its eventual failure.

Plot Twist

Yeah, but what if they’re MOON rocks? Then the fake nickel is even more valuable than the real stuff would have been. Problem solved. Contact me for any future economic confidence-related problems.

Anyhow, it’s a cool story. Now do all those “gold reserves” being held by the Federal Reserve.

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This is What Deflation Looks Like

The failure of Credit Suisse vaporized $17 billion in corporate bonds and another $31 billion in market cap in the last year. That means the Swiss government would have to find nearly $50 billion in new debtors just to stay even:

Credit Suisse said 16 billion Swiss francs ($17.24 billion) of its Additional Tier 1 debt will be written down to zero on the orders of the Swiss regulator as part of its rescue merger with UBS (UBSG.S), angering bondholders on Sunday.

FINMA, the Swiss regulator, said the decision would bolster the bank’s capital. The move reflects authorities’ desire to see private investors share the pain from Credit Suisse’s troubles.

Chair Marlene Amstad said FINMA had stuck to the country’s “too-big-to-fail” banking framework in making the decision.

It means AT1 bondholders appear to be left with nothing while shareholders, who sit below bonds in the priority ladder for repayment in a bankruptcy process, will receive $3.23 billion under the UBS deal.

Engineered in the wake of the global financial crisis, AT1 bonds are a form of junior debt that counts towards banks’ regulatory capital. They were designed as a way to transfer risks to investors and away from taxpayers if a bank gets into trouble.

This is why “printing money” doesn’t work in a credit economy. Yes, it’s easier to generate the meaningless digits on a balance sheet than it is to print paper, but it’s not so easy to produce new borrowers. And mass immigration has completely failed to provide the answer it was intended to be, because the immigrants are far less inclined to service their debts.

Now do you see why the failure of the Clown World economy was always inevitable?

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Bank Contagion

Booster Patrol may need to do another remake here soon, because it’s not looking good for Credit Suisse or for Santander in Spain.

Just got fired from this awful bank. There is literally no money. They’ve made awful investments in at least six countries and want to downsize to an online banking service should they get a bailout. They
are cutting credit card limits so people can’t withdraw money.

This is actually big. Unlike the banks that crashed already, Santander is an international bank that works with middle to lower class private citizens much more than business and rich people. The mood is awful. There is already talks of a massive recession all across the west. It is all but confirmed.

When even people who know nothing about economics are talking about a massive recession, you know you’re already in a serious depression. We have been since 2008, of course, but the declining economic activity been disguised by the combination of zero percent interest rates, government spending, and mass immigration.

Remember, GDP measures economic activity in the form of spending, so every time a Guatemalan enters the USA, receives $30,000 in state and federal assistance, and spends it at McDonald’s and wherever people buy cheap clothes these days, the economy grows!

Notice how it’s the international banks that are particularly struggling now, due to foreign investments that were absolutely unnecessary from the start. Because, as the investment bankers like to say, bears make money and bulls make money, but pigs get slaughtered.

UPDATE: UBS has offered to buy Credit Suisse for up to $1bn, with Swiss authorities planning to change the country’s laws to bypass a shareholder vote on the transaction as they rush to finalise a deal before Monday. The Swiss National Bank and regulator Finma have told international counterparts that they regard a deal with UBS as the only option to arrest a collapse in confidence in Credit Suisse and were working to reach regulatory agreement by Saturday night.

So the biggest banks get even bigger, and banking becomes more centralized and intrinsically more fragile. This is not a fix, this is just buying time until the next failure. Remember, it was UBS that had to be bailed out in 2008.

And notice how the rules are completely ignored. It would normally require a six-week period for UBS shareholders to consider the acquisition.

UPDATE: It looks as if the merger is off as the offer from UBS was rejected, probably because it was for about one-eight the market cap. Now the Federal Council is looking at nationalizing Credit Suisse, which is probably the right way to go. It’s certainly better than handing bankers a windfall while increasing the fragility of the system.

UPDATE: UBS is doubling the size of its offer, to CHF 2 billion, and it appears the offer will be accepted. $6 billion in market cap just vanished. This is what deflation looks like.

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