American Consequences - April 2021

Toxic Taxes & Deep Debt

Unmasking the Lockdown Tyranny

The GameStop Generation





APR I L 2 0 2 1


W hy did the pig cross the road? To get to the pile of money on the other side, of course... This month, we dive into this country’s pork- stuffed government spending, plus we tackle cancel culture, death by taxes, COVID one year later, and much more... Publisher Trish Regan sounds the economic alarm, noting that Biden’s call for trillions more dollars of spending on top of the COVID relief

Author Geoffrey Norman , featured in the Wall Street Journal and Esquire , gives a tutorial on how lowered expectations and rising debt have forever changed the college landscape. Executive International Editor Kim Iskyan explains the concept of stranded assets and how we’re now sitting on one of the most historical cases of the phenomenon... a trillion dollars in fossil fuels that could be worth nothing. Echoing Ron Paul’s sentiments, Executive Editor Buck Sexton lays down why it’s time to end the contagious, viral strain known as Dr. Fauci, who continues his misinformation campaign of inconsistent pseudo-science that’s stripping our liberties. Before the Netflix GameStop movie comes out, acclaimed New York Times featured writer Alice Lloyd introduces you to the real people behind the Reddit sub-thread with this in- depth profile of everyone’s favorite Wall Street story from 2021. As we hit the grim reality of the world’s one-year anniversary with COVID, former presidential strategist Sebastian Gorka, PhD takes an objective look at this lost viral year, separating pandemic fact from fiction. And don’t forget our popular new feature, Dunce of the Month , where we crown the latest face-palm-inducing antics in Washington and Wall Street. Find out this month’s winner here . Regards, Laura Greaver Managing Editor, American Consequences

spells financial doom for America. As the wokesters continue their

sanctimonious virtue-signaling parade, editor in chief P.J. O’Rourke wonders if what we need now is even more cancel culture (wink). And as we’re all pandemic-weary at this point, P.J. also notes another cultural epidemic in America – the politicization of everything and how we can cure it. It’s everyone’s favorite time of year: tax season. Professor Beverly Moran from Vanderbilt University makes the case for a return-free filing system where half of all Americans would never fill out a tax return again. Speaking of the IRS, Brandon Arnold , the executive vice president of the National Taxpayers Union, showcases how Biden’s economic policies will provide a toxic two- shot of deep debt and staggering tax rates. Libertarian legend, former congressman, and frequent American Consequences contributor Dr. Ron Paul pulls back the curtain on the draconian measures of vaccine passports and COVID lockdowns – and how Americans can reclaim their freedom.


April 2021

INSIDE ACCESS to Stansberry Research… FOR FREE

The Digest is one of the most important newsletters Stansberry publishes… This daily letter takes you “inside the room” to share the big ideas, crucial news, and timely opportunities Stansberry is following. Usually, access to the Digest is reserved for paid-up Stansberry customers only. But right now, American Consequences subscribers can gain access for free by clicking here.

APRIL 2021 : ISSUE 47




54 46


America's New Pastime: The Politicization of Everything BY P.J. O'ROURKE

46 Why Can’t the IRS Just Send Americans a Refund – or a Bill? BY BEVERLY MORAN



14 Stranded Assets: An Ocean of Oil BY KIM ISKYAN

50 Dunce of the Month: The Gaetz of Hell

Editor in Chief: P.J. O’Rourke Publisher: Trish Regan Managing Director: Jamison Miller Executive Editors: Kim Iskyan, Buck Sexton Managing Editor: Laura Greaver Creative Director: Erica Wood Contributing Editors: Andrew Amundson, Brandon Arnold, Sebastian Gorka PhD, Alice Lloyd, Beverly Moran, Geoffrey Norman, Dr. Ron Paul Advertising: Paige Henson, Jill Peterson Editorial Feedback: Published by:


22 Spending Stampede:

Will This Bullish Market Break America's Economy? BY TRISH REGAN

54 A Most Viral Year:


28 Unmasking the

60 We Need More Cancel Culture BY P.J. O'ROURKE

Lockdown Tyranny BY DR. RON PAUL

64 Dropping Out:

32 Toxic Taxes and Deep Debt:

The High Cost of Higher Ed BY GEOFFREY NORMAN

Biden's Ruinous Financial Policies BY BRANDON ARNOLD

70 The Fauciite Consensus Will Never Take Us Back to Normal BY BUCK SEXTON

38 Ready Player Won: Inside GameStop BY ALICE LLOYD



American Consequences


From Editor in Chief P.J. O’Rourke



April 2021


S Politics are dangerous to everybody. This is true if you’re scraping spray-painted obscenities off your Trump/Pence yard sign and wearing your MAGA cap at half-mast in mourning. And this is also true if you think AOC and the Green New Dealers have just dealt you a straight flush. (Flush twice – it’s a long way from Congress to your lunch bucket.) Of course, politics have always been

Right now, the most dangerous thing about politics is... politics.

How much money should we have? How much money can we have? What’s a dollar worth? How many dollars must we pay employees? Who are the employees required to be? Who is allowed to employ them? Who’s a real American? Who’s just pretending? Who gets to exercise free speech? What if they speak too freely? What should be taught in school? What should be believed in church? Which doctor can we go to? Which car can we drive? Or do we have to take the train? And what should the weather be like? Politics has become our first resort. And resorting to politics every time we face a

dangerous. Politics are how it’s decided who controls government... Whoever controls government controls the force of the law... And the force of the law is a lethal force. Fail to pay a parking ticket and you’ll be fined. Refuse to pay the fine and you’ll be jailed. Try to escape from jail and you’ll be shot. Every law, every government rule and regulation, no matter how trivial or picayune, is obeyed at the point of a gun. That gun is called politics. And what makes politics so dangerous right now is that Americans – Left, Right, and Center (if there even is a Center anymore) – have come to believe that the answer to every question is political.


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problem is as absurd as (and identical to) resorting to firearms. “Grab your shootin’ iron, Pa! Ma’s got bunions!” It’s safer to rely on people (a podiatrist, for example) than it is to rely on politics. Politics is a zero-sum game... Only one side can win. Individual people compete too. Only one person can be CEO. But there are plenty of different types and kinds of CEOs you can be. And how often do you apply for a job as CEO? Most of the time, when people are competing, it’s a game like golf or Little League, not a matter of life and death and parking tickets like politics. Individual people spend most of their time cooperating... the way a family does. Imagine if a family were a political entity where the decision about who had which domestic duties and financial responsibilities was made by the group that could muster the largest ballot majority or the most physical power to lay down the law. The poor old family dog would be holding down two jobs, raising the children, taking

care of the cleaning and housework, and – here’s where politics can go so wrong – the dog would be cooking all the meals. “Roadkill for dinner, again ?!” Politics is famously bad at allocating resources. Using the force of family politics you can make the dog do all the work. But this will leave your kids chewing shoes and peeing on the carpet and you and your spouse burying bones in the yard. Also, sooner or later, that dog will bite you. Politics is famously good at creating divisions. To bolster support, politics depends on a feeling of “Us.” But every “us” needs a “Them.” Encouraging an “us versus them” mentality is an experiment that has been tried hundreds of thousands of times since the beginning of political history. The results of the experiment Politics is famously good at creating divisions. To bolster support politics depends on a feeling of “Us.” Every us needs a “Them.”



April 2021


are always the same. “Us” turns into Dr. Frankenstein. “Them” suffers the fate of lab rats. The lab explodes. People die. A group is not a person. A person is not a group. Think how complicated a marriage proposal would be, how many legs pants would have, and how wide we’d need to make toilet seats if every person was a group. Politics, by making people into groups, makes people act strangely and badly. And the people who act the strangest and worst are politicians. The rest of us are imperfect. We give in to temptation. We commit the seven deadly sins. But politicians depend on those sins for their livelihood. They thrive on their sin. They’d be unemployed and homeless without the seven deadly sins. Lust for power drives politicians. Gluttony for a feeding at the public trough prompts their supporters. Greed for campaign funding is a necessity. Sloth in neglecting the public weal is required if the “us” are to get the better of the “them.” Wrath at opponents serves the same end. Envy of “them” must be whipped up in “us.” Pride “goeth before destruction,

and a haughty spirit before a fall.” Note that every politician is quick to say how proud he or she is to have been elected. And right they are to admit to the sin of pride because what is politics if not the destruction of some people by others and a fall from the grace of human mutual sympathy into the abyss of a war of all against all? But it’s not just what politics destroys that is to be feared... There’s also what it constructs. Politics builds a huge structure, an enormous governmental machine of jurisdiction and command, authority and restraint, domination and mastery around each individual. You may think you want a larger government. You may think you want country, an economy, and even a personal life where politics plays a greater role. But remember the

size and strength of this machine. What if an idiot gets control of it?

Some say an idiot did get control of it for a while. And some say another idiot is in control now. UR PAST ISSUES New to American Consequences? Check out our magazine archive... The mainstream media isn't telling you everything, and we've got the full story. CLICK HERE.

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mutual understanding is one thing we can completely agree on. Thanks for your fair and balanced news coverage. Your news organization is a breath of fresh air in a country which seems to be going in the wrong direction: towards Marxism, Socialism and a NewWorld Order that is in direct opposition to the founding principles of the country. – David B. P.J. O’Rourke Response: We do our best, David. But don’t be downhearted. Over the past 245 years, America has often gone in the wrong direction. But America is different from Americans . We trust individual people. And what we love most about America is that it gives those individual people the opportunity to find their own way . You asked for feedback – here goes! I like your stuff because it makes me laugh! When I get desperate for revitalizing my sense of humor, I pick up my old copy of your book, Parliament ofWhores, and read something – all of it is still relevant. It still makes me laugh. Just wanted you to knowwe have a connection through that book. I relieved Dave Bill of command of USS MOBILE BAY in June of 1990 in Mayport, FL. Shortly thereafter, we shifted home ports to Yokosuka, Japan, and shortly after that, were on our way to the Arabian Gulf with the MIDWAY battle group, entering the AG to begin Operation DESERT SHIELD, then on to ops in DESERT STORM. Along with Dave Bill doing fire support in WISCONSIN, I was

Re: Love us? Hate us? Send us your feedback! I am very pleased with your content! Keep up the good work, please! We need you more than ever! – J.J. P.J. O’Rourke Response: We thank you, J.J. And – as we tell every reader who is kind enough to compliment us – in order to keep up the good work, we need you more than ever. (And all your kith and kin – so pass the word.) Trish Regan Response: J.J., thank you for the kind words! We try our best here and want to make sure you’re getting the right information through the lens of what will matter most to our economy and our freedom. Thanks for reading! Hi, I just saw your site show up on my screen, probably because my fat fingers hit a button I did not notice. I am liberal, and go to sites like yours to see how others think. I am not hostile, nor a troll. I am interested in seeing what the responses are here. If we do not understand each other, we cannot talk.

Good luck in bringing us together. – George K.

P.J. O’Rourke Response: And thank you, George. Your comment is a compliment, too. If we manage to express ourselves without being hostile and without provoking hostility in you, then we have already been brought together in the most important way. There will never be complete agreement in a democracy. It may not even be desirable. But


April 2021

figuring we’d follow the allied “frontline” as it advanced to Kuwait City. Except there was no frontline. We accidently drove right into Kuwait midst blazing oil wells and blown-up Iraqi tanks. We could hear your firepower going over our heads into Iraqi positions, and bless you for it. I wound up in Kuwait City before the allied troops did and was standing on a burned-out street corner when they arrived. We have much to discuss. I’m of like age and disposition toward cocktails. I don’t have much in the way of pipe tobacco, but I’ve got some good cigars. Re: Corona’s Cultural Contagion I also remember crouching under my school desk for protection from a theoretical bomb raid. Even more confusing was the

assigned, as CO of MOBILE BAY, the duties as the Arabian Gulf Battle Force ZULU Anti-Air Warfare Commander (AAWC) – responsible for the air defense of the four- carrier battle force ZULU (call sign “ZW”). You would have been proud of the crew – over the course of the war, we performed thousands and thousands (over 60,000!) of deconflictions of inbound and egressing strike aircraft, with zero “blue on blue.” None. 24-7, all weather. On the land side, they (the Army and Air Force “air defenders”) did not do so well. We also fired 222 TOMAHAWKS against Iraq, and sank most of the Iraqi Navy. If you’d like more MOBILE BAY stories, let me know! FYI, I am 74, and drink from time to time... Used to smoke a pipe. All the very best... – Steve W. P.J. O’Rourke Response: Ahoy, Steve! It’s great

watchtower built on the high ground at the edge of town to provide early warning of approaching enemy bombers. I lived in a town of 7,000 people and didn’t understand the strategic importance of our small western town. The tower was accidently burned to the ground by some young boys playing with matches underneath the tower. I sensed at the time that the tower’s demise was a relief

to hear from you. And please give my best to

Admiral Bill. As you know from the book, I had a great peacetime cruise with him on the Mobile Bay shortly before you took command. I’m sorry we never got to meet in person. And thank you for all explosive stuff you threw at the Iraqis. It may well have saved my life. When the ground war began, I was in Dammam, Saudi Arabia. I joined a disorganized little convoy of fellow journos. We drove up to the Kuwait border

for the townfolks. – Ron C.


P.J. O’Rourke Response: Unless... those young boys playing with matches were commie agents ! In

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once...) would come in handy a few decades when writing about bonds! Re: Bill Hwang: Four Lessons From a Wall Street Failure This is the very best lesson anyone could receive on “options” as derivatives, and how options are a trap at many levels in a vertically integrated market. Thank you very much for a priceless share today. – Loy Kim Iskyan Response: Loy, thank you for your message. A lot of options aren’t all that complicated... But when used improperly or recklessly, they can create extraordinarily complicated problems for lots of others. This Archegos meltdown will likely trigger regulation of these sorts of instruments... It’s kind of crazy to me that they weren’t already under scrutiny – by the SEC, or by banks themselves (as a matter of pure self-protection). Re: The Rising Minimum Wage Debate Trish, as always, a job well done... great perspective on the situation of raising the minimum wage to $15/hr. People misunderstand the original purpose of the original law. It was never intended to be a living wage. It was just a wage to prevent workers from getting totally hosed. We use the minimum wage as an entry-level wage to get young people used to learning skills and requirements to have a job. Also, it helps give senior citizens an opportunity to supplement their income, get a chance to go out and stay active, and meet up with friends.

which case, Ron, you may have been in more danger than you thought in that little town! Good article about centralized planning. However, I would point out that China’s success in managing its economy is an existence of proof that centralized planning can work when there’s only one political party that is not distracted by a host of secondary objectives like diversity, gender, LGBT, keeping teachers happy, and on and on. As my old grandfather used to say “our government couldn’t manage a one-car funeral”. – Dave S. P.J. O’Rourke Response: Yes, Dave, but there’s no such thing as an undistracted single party in a single-party state. That one party is always distracted – distracted by trying to control what everybody is doing and thinking. And that one Chinese Communist Party is able to manage some really big funerals. (As many as 50 million people are estimated to have starved to death between 1958 and 1962 during Chairman Mao’s “Great Leap Forward.”) Re: ‘Boring’ Bonds Are Sounding the Alarm The opening sentence of this article was the most highly entertaining opening I have read in years. Funeral dirge crossed with early morning stats class with a hangover? Beautifully mordant. – Vince R. Kim Iskyan Response: Thank you for your kind words, Vince. Little did I know back then that my 8 a.m. stats class in undergrad (which I likely attended with a hangover more than


April 2021


If we create a new threshold of $15/hr for unskilled labor, what do we have to add to a person that has skills but is making say $13/ hr now? And how much more then needs to be added to their supervisor’s pay? I have little sympathy for a person that complains about only making $8.50/hr that has been working at that job for 5 years. What have they done to improve their marketable skills that would warrant a larger wage? I’ve been in positions where I wasn’t making the wage that I thought I should and when I asked, it always came back as I needed more skills. So I found a way to increase my capabilities. And I also learned to cut my expenses to pay for the additional training. I didn’t blame anyone else, nor did I expect someone else to make it happen for me. I just wasn’t brought up that way. My parents would be rolling over in their graves if they thought I had become a freeloader. I don’t want to think about what is going to happen with these people that don’t want to take responsibility for their future when they suddenly find themselves unemployed because automation replaces them. If they were smart, they would get into a technical school to learn how to repair those machines that took their job, to begin with! As a department head, I always push my staff to increase their knowledge base. And if their new skills will benefit the company, I ensure that the company will pay for it. I have no problem helping someone bettering themselves and have done this on a number of occasions. But as soon as the conversation turns to “you owe me,” my ears turn off. I blame it on the household they grew up in and the school system.

Anyway, thanks for the chance to voice my opinion and give out a “Well done” to Trish. – Dave Trish Regan Response: Many thanks, Dave. It’s good to have you here and reading these pieces. It sounds like we’re speaking the same language, and I couldn’t agree more. Keep your commentaries coming! “Working yourself out of a job!” That was what my late uncle David told me years ago. He used to teach finance in the MBA program at Stanford University. You are right. The process to speeding up automation that will put people out of jobs. Couple months ago I saw a local TV news program that was talking about a robot that makes french fries. Did you know that most if not all the housekeeping jobs in Tokyo Japan are done by robots! When I was studying for my finance degree nearly 40 years ago, the big thing then was the use of robots in making cars in Detroit. Raising the minimumwage is only going to hurt those who need minimumwage jobs. When the layoff of these people occur, it will be hard to get any job. – Gordon A. Trish Regan Response: Gordon, your uncle was a smart man! I think I heard the same thing from MY uncle who used to chair the economics department at University of Connecticut. Leave it to the economists... Anyway, there is a cost to a higher minimum wage and it will not have the intended effect of helping the majority of Americans. As you know, I’m a big believer in getting the government OUT of the way. Thanks for reading!

American Consequences




April 2021

By Kim Iskyan


The best word to sum up these situations? Stranded . In the investment world, a “stranded asset” – the money equivalent of cooling your heels on a chilly airport floor, or a beached boat left for the vultures – is a resource that at one time produced income or held value but no longer does. It’s experienced an unexpected (or earlier- than-expected) write-down or collapse in value – and perhaps it’s gone from being an asset (worth something) to being a liability (costing you something). An asset can become stranded due to some kind of external change in technology, markets, policy, society, litigation, or something such as climate change.

See if you can guess the common theme in these scenarios... Your plane lands in Denver, and your connecting flight is canceled just as the snowstorm of the century moves in. So you’re stuck and snowbound as the entire airport is closed down for days... A crippled boat topples over on the cracked thirsty earth, on what used to be the shores of the Aral Sea – before an endless drought and aggressive agriculture practically drains the world’s fourth-largest lake... Around $900 billion worth of energy assets which, according to the Financial Times , could “evaporate” if governments move more aggressively to reduce carbon emissions (more on this below)... If you answered that each of these scenarios is a cocktail of desperation and hopelessness, blended with isolation and served with a side of loss and despair, you are correct! (Sorry, you win nothing, except this informational and entertaining story... keep reading.)

An asset can become stranded due to some kind of external change in technology, markets, policy, society, litigation, or something such as climate change.

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And three months after the Fukushima nuclear disaster in March 2011, Germany decided to shutter eight of its nuclear power plants almost immediately and to phase out its remaining nine plants by 2022. The EUR2.4 billion paid by the government to nuclear power plant operators as compensation represented a small fraction of the estimated $12 billion per year total “social cost” of closing down just the first eight plants. The market price for abandoned nuclear power plants approximates the value of the coins on your dresser. That’s stranded . THE BIGGEST STRANDED ASSET IN HISTORY Right now, investors are grappling with the prospect of the biggest batch of stranded assets in history... nearly $1 trillion in fossil fuel reserves. Under the terms of the Paris Agreement, 196 countries – including the United States, which reentered in February – agreed to aim to reduce the emission of greenhouse gases into the atmosphere. The objective is to limit the rise in global temperatures to 2 degrees Celsius (3.6 degrees Fahrenheit) above pre- industrial levels (with a reach-for-the-stars aim of 1.5 degrees Celsius). Fossil fuels account for 89% of greenhouse gases, according to the Intergovernmental Panel on Climate Change. So the only way to prevent climate catastrophe – more 100-degree days in Siberia (this happened in June), and the 3.1 billion people on Earth who live within 60 miles of the coast having to grow scales since they’ll be permanently swamped – is to limit the usage of fossil fuels.

For example... Let’s say you’re a top-notch oil lamp producer... Then along comes that annoying Ben Franklin and his electricity. It’s not long before your inventory – and your business – is worth close to nothing because the market that you serviced no longer exists, outside of little old ladies who don’t believe in the devilry of the light bulb. More recently... The value of a New York City taxi medallion – a license to operate a cab – collapsed from $1.3 million in 2002 to $200,000 by 2014, as Uber and other ride-hauling apps entered the market. Now, there are still plenty of yellow cabbies on the streets today... But the value of driving a cab has collapsed – and the price of a NYC taxi medallion is never coming back. One-third of the world’s oil reserves, half of total gas reserves, and upwards of more than 80% of coal reserves will need to not be used – not brought up to the surface, and not burned into the atmosphere – to hit the 2-degree target, so that

Mother Earth can still be breathing when our grandkids are adults.

How about that chunky rotary phone in your closet that used to be a centerpiece of your social life? Now, it’s only valuable for the grins of your grandkids when you display it as a relic of another era – priceless, perhaps, but virtually worthless in market terms.


April 2021

A widely cited 2015 study claims that around one-third of the world’s oil reserves, half of total gas reserves, and upwards of more than 80% of coal reserves will need to not be used – not brought up to the surface, and not burned into the atmosphere – to hit the 2-degree target, so that Mother Earth can still be breathing when our grandkids are adults. This is an extinction-level challenge for the likes of Exxon, BP, Chevron, Saudi Aramco, and every other oil, gas, and coal producer, as the Financial Times explained in February 2020... Vast swaths of oil, gas and coal reserves may never be extracted and burnt because doing so would intensify global warming, worsening freak weather events and threatening the loss of farmland and huge population displacement... In that context of the climate emergency, the cost of writing off stranded assets could be seen as a small price to pay. But the amounts involved would be breathtaking. According to [ Financial Times ] estimates, around $900bn – or one-third of the current value of big oil and gas companies – would evaporate if governments more aggressively attempted to restrict the rise in temperatures to 1.5C above pre-industrial levels... Oil and gas companies frequently write down, or decrease, the value of reserves to reflect a revised outlook on commodities prices. A big deep-water oil project that requires an oil price of $90 per barrel to deliver a 15% return – launched when it looked like oil prices would remain above $100 per barrel indefinitely – is a lot less compelling in a $60 per barrel oil environment.

In that case, a big oil company might suspend operations on the project and reduce the value of the project on its balance sheet (which is more of an accounting maneuver than anything else). It would still show the reserves as an asset, and it could resurrect the project if oil prices were to rise. FINDING THE NEXT THING But a Paris Agreement-inspired stranding of assets is a different matter. It’s permanent and irrespective of the price of oil or any other bottom-line-driven factor. And it’s not like oil and gas production is a side hustle for the likes of Chevron or ConocoPhillips... This is like telling McDonalds, “Sorry, you can’t sell fast food anymore – figure something else out.” A Paris Agreement- inspired stranding of assets is a different matter. It’s permanent and irrespective of the price of oil or any other bottom-line-driven factor. And it’s not like oil and gas production is a side hustle for the likes of Chevron or ConocoPhillips... U.K. energy major BP helped kick off the process of cutting off its own limbs in June, when it slashed $17.5 billion from the value of its oil and gas assets. The Financial Times opined that the write-down was “the biggest recognition yet among the largest oil and gas players that tens of billions of dollars worth of investment could be rendered uneconomic as the world pursues the Paris climate goals.”

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A few months later, BP – which read the room as early as 2002, when it rebranded itself from British Petroleum, to Beyond Petroleum – said it would cut oil and gas production by 40% and aim to increase renewable-energy generation capacity 20-fold by 2030. Will it work? BP’s history – which includes one of the largest oil spills in Alaska’s history (2006) and the biggest marine oil spill ever (Deepwater Horizon in the Gulf of Mexico in 2010) – doesn’t inspire confidence. Its marketing propaganda – the company’s purpose is to “reimagin[e] energy for people and our planet” and to “help the world reach net zero and improve people’s lives” – has the feel of an all-night Greek diner that’s trying to reinvent itself as haute cuisine. And, of course, BP is just one of dozens of energy companies that are staring into the abyss. But since the FT ’s February 2020 forecast that oil companies would need to throw overboard $900 billion in assets,

investors haven’t blinked. The share price of the iShares Global Energy Fund (IXC), an ETF that holds a who’s-who of big energy companies, is roughly flat over the past year (though it’s been volatile, along with stock markets globally). There’s still plenty of room to fall. And any forecasts while the process is still ongoing aren’t worth much. A 2016 report by global investment bank UBS about energy companies’ stranded assets concluded that “many public oil and gas companies appear to be reasonably valued... even under a ‘strong form’ of the stranded assets hypothesis” – which is broker-speak for “it can’t get any worse than this.” (Since then, though, IXC is down around 20% – while the S&P 500 has roughly doubled.)

THE JOURNEY TO STRANDED No asset is “stranded” overnight (unless


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that is, the price-to-earnings (P/E) ratio (in absolute terms, as well as relative to similar assets, and to its own historical levels) will decline as the share price falls, reflecting investors’ diminishing faith in the earnings power of the company. (Note that the P/E ratio could also increase if earnings actually do decline faster than the share price falls. No one said finance wasn’t confusing.) A few bad trading days, a lousy quarterly earnings report, or a big fund that’s forced to liquidate a position in a hurry can result in a temporary “cheapness” in a stock. If the stock doesn’t have some deeper reason to deserve to be cheap, an efficient market populated by eagle- eyed investors will correct that soon enough. But string a few of those sorts of situations together plus (for example) a general slowdown in the sector, and a stock can become “undervalued.” The discount rises, and the path back to valuation respectability is a bit more challenging.

it happens during a pandemic... more on that below). Oil lamps lingered for a long time before light bulbs found their way into houses... And the disruption of Uber took a few years to unfold. Plenty of people kept their door-stopper rotary phones even as mobile telephones replaced land lines and the idea of a “home phone.” Nuclear power had been under pressure in Germany for decades before the Fukushima disaster accelerated the trend. After the fact, it’s easy to chart an asset’s path to “cheap”... as it devolves to “undervalued”... enters the realm of “contrarian” or “deep value”... and then further regresses to “impaired” and/or “left for dead”... before falling off a cliff to wind up at “stranded.” This journey is easy to explain for stocks, for which there’s a liquid market and readily available comparables (neither of which exists for oil lamp shops or German nuclear power plants). At each stage heading toward stranded, the valuation discount of the asset increases...

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Next, toss in some serious management missteps, an accounting scandal, or a bigfoot competitor that’s eating everyone’s lunch, and a stock enters the realm of “contrarian.” It’s very cheap, for very good reason... The company might recover, or – like a basketball player who ruptures their Achilles tendon – it might never be the same again. Stocks in Argentina have a Frankenstein-like knack for coming back to life after being repeatedly left for dead. Throw a rock at a stock listed on the country’s stock exchange, and chances are good that it’s experienced at least four 80%-plus collapses over the past two decades and a similar number of triple- digit recoveries. A stranded asset is worthless at best... or (even worse) an ongoing liability for its owner. Just because an asset no longer holds value doesn’t mean that its owner doesn’t still have to pay rent, property tax, security, or upkeep for it. THE LAST STOP Stranded is the last stop... As an asset steadily depreciates in value, it’s passed on – hot- potato-like – to the next guy who thinks that he can turn it around or that it’s on the cusp of rebounding. But eventually, the investor left holding the stranded asset winds up with nothing more than a cold spud. Perhaps the savvy oil lamp shop owner sold his inventory to a discounter – a colonial-style factory closeout – not long after Ben Franklin

found himself flying a kite in a thunderstorm. Somewhere down the line, someone was stuck with a warehouse full of oil lamps (space that perhaps, a few centuries later, was taken up by rotary phones). A stranded asset is worthless at best... or (even worse) an ongoing liability for its owner. Just because an asset no longer holds value doesn’t mean that its owner doesn’t still have to pay rent, property tax, security, or upkeep for it. And over the past year, a lot of assets have degenerated to stranded within a matter of months. As Bloomberg explained in April 2020... Empty restaurants. Shuttered theaters and hotels. Grounded airplanes. At least at the moment, they all fit the definition of stranded assets subject to premature writedowns and operating losses. Everyone is getting a close look at the vast economic and human costs associated with investing in infrastructure that can’t be used, even temporarily. The threat of bankruptcy and restructuring suddenly spans the global economy from offshore drilling to retail. An asset that’s stranded isn’t dead and gone forever... It still exists as a physical entity, and someone – no matter how reluctantly – owns it. A shuttered restaurant or an abandoned hotel may eventually get a second life with a different owner, after bankruptcy proceedings and under a different nameplate. The initial investment made by the next investor is a lot lower than it was for the people who started it the first time around. Buying an asset at a fire-sale price means that it’s that much easier to make back your


April 2021

investment. The level of cash flow or net income required for the asset to be financially viable (that is, make money) is a lot lower. Maybe those warehoused obsolete oil lamps are retrofitted as camping lanterns to be sold at a fraction of their original market price. But since the guy who acquired them paid pennies on the dollar, he can sell them for cheap... and still make money. BEWARE OF BEING STRANDED It’s not just energy companies – or oil lamps, or taxi medallions, or theaters and restaurants, commercial real estate – that run the risk of holding stranded assets. Disruption and innovation can strand even the most seemingly robust assets... Cattle. Producing one pound of beef requires 1,800 gallons of water (corn: 108 gallons), 10 pounds of grain, and 108,000 Btu (that’s enough energy to light a 60-watt light bulb for 22 days). Cattle do violence to the environment like spray paint on a 1970s New York City subway car. Today, even your local Burger King offers tasty – and price- competitive – plant-based meat substitutes for beef. How long, under the pressure of the same folks who brought us the Paris Agreement, before the market for cattle (and the land they graze on) starts to disappear? Gold. What if the world’s oldest store of value is supplanted by cryptocurrencies? Unlikely. But weakness in the price of gold in recent months – despite the biggest infusion of liquidity by central banks (which should be good for the price of gold) – is due at

least in part to cryptocurrencies entering the mainstream. Gold miners could be sitting on a lot of worthless shiny metal. Stranded assets are always eventually resolved. The snow on the Denver airport runways will melt... The stranded boat on the ex-Aral Sea will, with time, deteriorate into dust... And energy companies’ fossil fuel assets will be written off. Your professional skills. The history of labor is speckled with examples of once- hot skill sets (building a car, typing a memo, managing a portfolio, depositing a check) rendered obsolete by technological innovation. Artificial intelligence is pushing up the professional ladder, tackling white- collar tasks that until recently were beyond the reach of computers. (Even the world of investment research isn’t untouched... Investment research firmMorningstar recently announced that robots will be writing fund reports.) Best to prepare – maybe via a rebranding like BP’s, only better – if it looks like your skill set is set to become a stranded asset. Stranded assets are always eventually resolved. The snow on the Denver airport runways will melt... The stranded boat on the ex-Aral Sea will, with time, deteriorate into dust... And energy companies’ fossil fuel assets will be written off. The key is to not be the person who’s left holding them at the end.

American Consequences

American Co s quences







April 2021

By Trish Regan

There’s a familiar chorus being sung and broadcast by the Biden administration right now: “ We need more stimulus .” STAMPEDE


The introduction of the infrastructure plan indicates how far Left they want to take the country... $400 billion of the $2.3 trillion requested will go to “elderly care,” while $213 billion will go toward “affordable housing” projects. A reasonable person would ask, “Does that count as infrastructure?” And a reasonable answer would be, “No, not really!” Though when it comes to socialist-style spending, there’s a bankruptcy in logic. Instead, Brian Deese, who ran the Green Energy Division at BlackRock (the world’s largest asset manager, handling enough capital to rival the U.S. GDP), offered a convoluted explanation about the stimulus bills’ A reasonable person would ask, “Does that count as infrastructure?” And a reasonable answer would be, “No, not really!”

The justification? Our government needs more money because our economy is that broken. In fact, it’s so broken that we need to enact the most staggering spending program since FDR. “The economy and virus are spiraling downward,” said Brian Deese, head of the Biden National Economic Council, in a Fox News interview Easter Sunday. This came just two days after the nation learned an astonishing 916,000 jobs were added in the previous month – bringing the unemployment rate down to an impressive 6.0%. But that jobs report doesn’t quite fit the current Administration’s narrative – not when they’re trying to “remake” the American economy in their warped vision. And if they get their way, it’s time for a new chorus: Goodbye capitalism, hello socialism . SOCIALISM, USA With $1.9 trillion in stimulus spending already on the books, the Biden Administration keeps looking for more (and more, and more) taxpayer dollars to put toward its big, woke projects.

American Consequences



social spending... He claims the proposed infrastructure spending should theoretically update roads, bridges, and (hopefully) our electrical grid. Are we confused yet? Deese told Fox, “We need to update what we mean by infrastructure for the 21st century” because affordable housing is infrastructure (it’s construction, he says). Elderly care is infrastructure because it addresses the infrastructure of care. And what you’re reading now is an infrastructure of content. I’m not doubting that those are both worthy causes – they are. But considering we are already running a debt-to-GDP ratio of 102%, we cannot afford these ambitious undertakings. Meanwhile, Biden’s agenda is about to get even more outsized... In the coming months, the White House promises to introduce spending to the tune of trillions of more dollars for more social programs including childcare and health care initiatives. Again – noble, worthy causes. But can we afford them? (Hint: we can’t.) So, what’s the deal with all this policy ? Is Bernie Sanders in the White House? Wasn’t Biden just supposed to be the “nice guy”? The calm, casual alternative to the “Trump circus”? If so, why are we about to experience the most radical changes to our country’s economic system since FDR? Unless, of course, that was the goal all along?

THE GHOST OF FRANKLIN ROOSEVELT President Biden sees a small window of opportunity here, and he’s taking it . He’s warned us that “We’re at war with COVID-19,” and stimulus is how we will fight the invisible viral army. But the battle’s winding down... It’s almost V-Day. Why all the spending now? Unless this is a “crisis” that Biden and company do not want to squander for political gain? The pandemic provides an opportunity for a spending spree and a chance to realign this country’s economic order that echoes the 1930s-Roosevelt era. And Biden himself is channeling FDR. Before introducing his infrastructure plan, he reportedly summoned a group of academic historians to the White House to ask how history might perceive him if he moved quickly on these mass spending programs. Predictably, the liberal academics promised that history would love him for it. Well, that depends on who writes the history . One learns as a small child in American schools that FDR was our savior, right along with JFK and Abraham Lincoln. Had it not been for him and his New Deal, our country never would have emerged from the mires of the Great Depression. But then there’s the truth... Economists and historians know that the positive, lasting effects of FDR’s economic legacy are debatable. Eight years into his


April 2021

In an op-ed for The Washington Post , Larry Summers warned of the dangers of inflation, writing, While there are enormous uncertainties, there is a chance that macroeconomic stimulus on a scale closer to World War II levels than normal recession levels will set off inflationary pressures of a kind we have not seen in a generation. There will be consequences for the value of the dollar and financial stability.

administration’s massive spending (three times our federal budget at that time), 14% unemployment still plagued the country. And the unemployment numbers during his first two terms averaged 18% (without women even officially part of the workforce). As noted financial historian Amity Shales writes in her book The Forgotten Man, everything from government-mandated (high) wages, price-fixing on goods, and massive taxes worked against the economy. These measures held back progress and contributed to the persistent shortage of jobs in the latter part of the 1930s. Meanwhile, despite evidence that his programs weren’t working, FDR seemed surrounded by sycophants. Shales writes, It is difficult for men in high office to avoid the malady of self-delusion. They are always surrounded by worshipers. They are constantly and for the most part sincerely assured of their greatness. Not unlike Biden meeting with swarms of liberal, glad-handing academics now (maybe Shales should have been invited). No one in the administration will listen to why this course of action might be wrong – not even from one of their own. EVEN THE DEMS ARE PANICKING Larry Summers, Bill Clinton’s former Treasury Secretary and Barack Obama’s former head of the National Economic Council, is decidedly not on board with Biden’s current economic policy. He’s calling it the “least responsible” in four decades, while insisting that we’re creating “enormous risks.”

No one in the administration will listen to why this course of action might be wrong – not even from one of their own.

The liberal media promptly mocked Summers for his views, including Slate which wrote, “Larry Summers Has Some Weird Fears About the Biden Relief Plan.” Mother Jones adding, “The White House doesn’t want to hear from Larry Summers.” And Politico said that Summers “Is the skunk at the COVID relief party.” But the media’s intimidation isn’t stopping him... Instead, Summers is doubling down, recently telling Bloomberg TV that, “These are the least responsible fiscal macroeconomic policies we’ve had for the last 40 years.” The United States, Summers warned, will face “a pretty dramatic fiscal-monetary collision.” “What is kindling is now igniting,” he said, explaining that the COVID recovery will create demand at the same time as the government is giving out money and the

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Federal Reserve is “stuck to its guns” on loose monetary policy. Summers went on to say that there was a “one-in-three chance that inflation would accelerate in the coming years,” and the U.S. could face stagflation. He also said he saw the same chance of inflation because the Fed would hit the brakes hard and push the country toward recession. The final possibility, he said, is that the Fed and Treasury will get rapid growth without inflation which is, of course, what they want. Considering all of this, I encourage people to invest. Having watched too many middle Americans scarred from the tech bubble bursting in 2000 and deciding to sit on the investing sidelines in 2008 – I would hate to see history repeat itself. Nonetheless, the World Bank’s former economist cautioned, “This macroeconomic policy poses more grave risks at this moment than any other I can remember.” AS THE DOLLAR DIVES, INFLATION CLIMBS Larry Summers is right... And I give him credit for speaking up at a time when it’s not so easy to speak up. His friend Janet Yellen is there now in the Treasury, and with Biden as president, Summers has every reason not to

rock the Blue boat. But sometimes, when you see a storm coming, you need to grab the wheel and veer your vessel to safer waters. There is no way that the printing of so much money will not result in pressure on the U.S. dollar. Currently, the U.S. Dollar Index (DXY) is trading near 92 – down from 100 roughly a year ago. As the government continues handing out money, spending massive sums on overly ambitious projects we cannot afford, the dollar will continue losing value relative to other currencies. And that means it will take even more dollars to purchase assets, thereby creating an inflationary environment for asset prices. Part of the reason for the run-up in stock, oil, and real estate prices in the last year is the expectation that the government will overshoot – and, in doing so, will create too much liquidity and generate inflation. Now, I’m not talking inflation for wages (if only) but, instead, the prices for everything else. Food prices jumped 3.5% in February, food in restaurants gained 3.7%, and energy prices gained 6%. Home prices are at record highs – so, clearly, some sectors are rising. Considering all of this, I encourage people to invest. Having watched too many middle Americans scarred from the tech bubble bursting in 2000 and deciding to sit on the investing sidelines in 2008 – I would hate to see history repeat itself. There was tremendous inflation in asset prices during the Obama-Biden years, but none in real wages.


April 2021

As someone who once worked in fixed income (I started my career at Goldman Sachs in emerging debt markets where we traded sovereign debt instruments), I’m a little biased. To me, the bond market knows things long before the equity markets do. In fact, if you watched where yields were heading on CDIs in 2006 and 2007, you’d have been tipped off to the looming financial crisis. Nowadays, I’m watching the 10-year on treasuries. So far, so good. It’s hit the 1.7% mark but hasn’t stayed there. Technically speaking, we ought to be more at 3% on the 10-year. So, I’m not too worried – yet. In the meantime, I encourage you to get creative. I’ve long been fascinated with digital currencies thanks to the incredible blockchain technology that they employ. It’s possible that as we move increasingly into a digital world, and as people increasingly seek ways to develop ease with transactions away from the government glare, bitcoin and other cryptos will play an important role in transitions in our future. Check out my latest bitcoin podcast and watch this webinar for some critical answers to crypto questions. There is a massive change underway. Ultimately, I expect the American public, who are far more centrist than our politicians give us credit for, will reject this social remaking of America. President Ronald Reagan famously said, “Government is not the solution to our problem. Government is our problem.” Now that’s a chorus I can get behind.

Now that Biden has some rocket fuel (via at least one major stimulus package more than twice as much as Obama’s) with an expected additional influx of cash on the way, we’re again getting set up for a fragile bull market. BULL IN A CHINA SHOP There are countless ways to “burst” this growing asset bubble. What happens if Biden is successful with an increase in the capital gains tax? His team has pitched taxing investment as income. If they move forward with this plan, it will take the wind out of this market’s sails. What happens if Biden is successful with an increase in the capital gains tax? His team has pitched taxing investment as income. If they move forward with this plan, it will take the wind out of the sails of this market. What happens if corporate tax rates go up? If the Biden team is successful in raising corporate taxes to 28% (from the current 21%), the U.S. will once again be one of the most expensive places in the world to do business. These higher rates will hurt earnings (and thus, possibly equity valuations) and could damper enthusiasm from investors in U.S. markets. My recommendation is always to stay vigilant. Be aware of the policies at play and their possible effect on your dollars and investments. For long-term investors, I encourage people to watch for opportunities to buy as markets fall – but even as S&P 4k seems totally normal, it’s critical investors remain focused on any emerging trends in the fixed income markets.

American Consequences


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