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Yesterday, as the gamma meltup insanity of the past month finally rolled over and tech names tumbled, we said  “the real questions emerge and first and foremost is who was it that led this furious gamma charge higher, taking on virtually every dealer?”

As a reminder, this came following several weeks of bizarre market moves duly discussed here, which we said could be described as an unprecedented “epic battle” in gamma “between one or more funds who were aggressively loading up on gamma and bidding up calls to the point that VIX was surging even as stocks hit 9 consecutive all time highs, while dealers were stuck “short gamma” and in their attempts to delta-hedge the ever higher highs, would buy stocks thereby creating a feedback loop where the higher the market rose, the more buying ensued.”

Yesterday, we first identified the solitary party that was responsible for the unprecedented call-buying insanity as Japan’s bizarro VC/media conglomerate SoftBank, and elaborated:

It is hardly unreasonable to imagine SoftBank, the “brains” behind such catastrophic investments as WeWork, WireFraud WireCard, and countless other failed “unicorns” would desperately try to Volkswagen not just a handful of tech names, but the entire market in the process. After all, Masa Son is desperate to deflect attention from the fact that as we put it last October, “SoftBank is the Bubble Era’s “Short Of The Century.” And if there is one thing that can salvage the Japanese VC titan’s reputation it is a second tech bubble which blows out the valuation of his countless (otherwise worthless) investments which form the backbone of SoftBank’s “AI Revolution” whatever that means.

Today, one day after our original report, the Financial Times catches up and confirms that SoftBank has been “unmasked as the ‘Nasdaq Whale’ that stoked the tech rally”, writing that Masa Son’s investing vehicle “has bought billions of dollars’ worth of US equity derivatives in a move that stoked the fevered rally in big tech stocks before a sharp pullback on Thursday, according to people familiar with the matter” (oddly enough, the FT forgot to note that “this was first reported by Zero Hedge” but whatever.)

While traditionally SoftBank for investing in either unicorns or megafrauds such as WireCard, the FT repeats what we first said, namely that SoftBank has “also made a splash in trading derivatives linked to some of those new investments, which has shocked market veterans.” It goes on to quote a derivatives-focused US hedge fund manager “These are some of the biggest trades I’ve seen in 20 years of doing this. The flow is huge.“

How huge? Huge enough to send the implied vol of calls of the world’s biggest company, Apple, soaring at the same time as its stock price hit record highs.

It’s also why the S&P kept rising alongside the VIX, which hit a record high at a time when the S&P was also at an all time high, as we first pointed out on Wednesday, warning that the last time this happened was when the dot com bubble burst.

How much did SoftBank buy? According to the WSJ, which also moments ago confirmed our original reporting, SoftBank…

… spent roughly $4 billion buying call options tied to the underlying shares it bought, as well as on other names

… which due to the embedded leverage in options, is the equivalent of buying tens if not hundreds of billions of underlying stocks, thus sparking the massive upward move in the handful of tech stocks which then spilled over everywhere.

And speaking of underlying stocks, in Q2 SoftBank just so happened bought brand new stakes in all the super high beta names including Amazon, Google, NVidia, Tesla, Netflix, Zoom and so on.

SoftBank’s trade was simple: buy billions in underlying ultra-high beta stocks, then also buy billions in call options to take advantage of illiquid markets and gamma, and sure enough all the “SoftBank stocks” exploded to all time highs, and in the process dragged the entire market higher.

Going back to the FT’s confirmation of our original report, it quotes another anonumous “person familiar with SoftBank’s trades” who said it was “gobbling up” options on a scale that was even making some people within the organisation nervous.

“People are caught with their pants down, massively short. This can continue. The whale is still hungry.”

Or not, because if SoftBank “forgot” to take profits and has been piling on gamma, it is now entirely at the dealers’ mercy as we first explained yesterday, which incidentally explains today’s continued plunge in tech names as traders brace for the unwind of all that gamma.

Of course, that’s the last thing SoftBank – which already is hurting from the dismal performance of so many of its recent investments – wants, and is why a banker “familiar with the latest options trading activity” told the FT that Thursday’s market pullback would have been painful for SoftBank (well, duh), and “he expected the buying to resume” unless of course the dealers double down and sell all those same calls that exploded in recent days. The FT then added, perhaps for the benefit of its Robinhood readers that “a larger and longer-lasting stock-market decline would be more damaging for this strategy, and would probably involve rapid declines.”

While there was nothing actually new in the FT report beside merely confirming what our readers already knew, all we can say is that we sincerely hope that Masa Son publishes all his material derivative holdings so the public can take the other side and finally crush this grotesque company which last October we said was the “Bubble Era’s “Short Of The Century“.”

Meanwhile, for those wondering just how far from the Minsky Moment we are, it appears that Japanese pensioners – who are the 4th largest holder of SoftBank – are now indirectly buying deep OTM Apple and Tesla calls:

One final point: while there is an amusing feud brewing between the FT and the WSJ about who broke the SoftBank story (spoiler alert: neither)…

I have huge respect for the excellent work the Wall Street Journal does but it’s *very* poor form for it to not credit the FT in it’s, er, six paragraph follow up to our huge SoftBank scoop https://t.co/09O5QLy7Hy

— Matthew Garrahan (@MattGarrahan) September 4, 2020

… the real question is which media publication will refuse to touch on the next part of this story, and where the rabbit hole really goes: namely the frontrunning of call options by certain HFTs who clearly magnified the gamma effect sparked artificially by SoftBank.

Authored by John Tamny via RealClearMarkets.com,

Economic discussions would be much better if it were understood that no one receives dollar, euro, yen, pound or yuan “aid.” They receive the goods that those currencies can be exchanged for. Money on its own doesn’t feed, shelter or clothe. It’s only useful insofar as it’s accepted by the producers of actual goods and services.

This simple truth is hopefully useful as a backdrop to what’s happening in Europe right now.

As Liz Alderman of the New York Times reported on Tuesday, Europeans are presently suffering rather painful job cuts. In Alderman’s words, “At BP, 10,000 jobs. At Lufthansa, 22,000. At Renault, 14,600.”

To the half awake in our midst, what’s happening is a statement of the obvious. Some of the most stringent lockdowns related to the coronavirus happened in Europe. The shutdowns in France were the strictest, including limits on simply leaving one’s home. The virus spread despite them, but so did economic contraction.

That contraction spread was a blinding glimpse of the obvious. Lockdowns by their very name limit activity, including that related to work. With Europeans suddenly experiencing reduced personal and economic mobility, production was naturally going to decline.

All that, plus the only closed economy is the world economy. A not insubstantial portion of Europe’s economic vitality is a consequence of production elsewhere. Translated, tourism looms large on a continent that increasingly limited the inflow of tourists. European goods of the car and clothes variety similarly enchant the world’s citizenry, but with global demand a consequence of supplying first, it’s no insight to say that Europe’s countries suffered economically the lockdowns that took place far from Europe.

But wait, some will say, Europe has a “safety net.” Its countries are led by enlightened types who place a cushion under the economically displaced. Don’t readers remember all the fawning reports from Europe in April and May? It was said then that Europeans believe in science (hence the lockdowns), and their belief in science positioned governments to shut things down sans protest. The latter was muted because those same enlightened governments subsidized corporate maintenance of jobs that were rendered rather redundant by a major decline in economic activity.

Europe got it right was the view. Its people stayed home in order to keep the virus at bay (except for where this didn’t work very well – think France once again….), plus they kept their jobs.

Except that they didn’t. Whether public or private, corporations aren’t charities. Eventually they were going to run out of the funds to prop up the alarmism of enlightened European leaders and citizens.

This happened precisely because European governments ran out of money. Or there were limits to their subsidizing the impossible whereby in the words of Alderman,

“European countries ordered businesses to shutter and employees to stay home,” only for the governments in those countries to “shield workers from the prospect of mass joblessness, extending billions to businesses to keep people employed.”

What’s that Thatcher said about socialists, that eventually they run out of other people’s money?

The above truth would be easier to understand if it were better understood that money itself once again isn’t wealth. Money merely moves actual wealth around. European governments couldn’t continue to subsidize idle workers simply because an ability to not work is – gasp – a consequence of production. Get it?

Governments don’t or can’t just pull money from the sky no matter how many times the central-bank obsessed claim they can. In truth, governments can only subsidize a lack of work insofar as others are working in prodigious fashion. Translating what really doesn’t require translation, there’s no such thing as government spending. What’s real is that governments can give out access to food, clothing and shelter only insofar as they can arrogate to themselves a piece of the actual production in an economy.

Europe’s governments were never generous as much as the productive in Europe were long willing to be fleeced to varying degrees so that politicians would handle the dirty work of clothing, feeding and sheltering those who lacked the means to do for themselves. Major social welfare programs are never where there’s there little production, and ubiquitous to varying degrees where there’s lots of it.

What’s happening now is that Europeans are unwittingly happening on the basic truth that Say’s Law is real. Consumption is what happens after production. By definition. Wouldn’t so many love to be free to consume without the toil that enables it? Yes, all too many of us would love to be heirs.

Of course, too easily forgotten is that heirs are able to consume with abandon precisely because those who came before them produced with abandon. Consumption is a consequence, not a driver of economic growth.

Which is why Europeans are now being forced to face up to a cruel reality. No country or continent ever consumed its way to prosperity. Consumption is the reward after the production.

Oh well, European politicians sidelined the continent’s producers only to hand them euros, pounds and francs so that they could continue consuming. It’s sustainable for a while, but if much of a continent and much of the world isn’t producing, eventually the producers of the wealth that enable the handouts are going to be confronted with their own reality. The latter is one that says no business will remain as one if those in its employ are idled. As for governments, they once again can only subsidize a lack of toil insofar as people are toiling.

This collision of reality brought Europe to a logical conclusion. The money that is a consequence of production, and that only has value where there’s production, plainly ran out. Hence the layoffs.

Crucial is that government can’t reverse this bit of reality. Only private production can. Which brings us back to what’s simple and easy: if countries want their economies revived, they must end the restrictions that are limiting the private production without which governments have nothing to hand out.

Perhaps the time is right for a new wave of nuclear reactors, ones that are smaller than traditional nuclear power plants for several reasons:

• First, mini-nuclear reactors could compete with green energy with hopes of reducing CO2 emissions by 2050.

• Second, traditional nuclear power plants are aging, and construction is plagued with delays and substantial cost overruns. 

Attention surrounding mini-reactors spiked in late Aug. following Bill Gates’ nuclear energy venture, TerraPower LLC., is set to develop miniature nuclear power stations. 

Gates founded the firm more than a decade ago, is set to build commercial advanced nuclear energy plants called “Natrium” in the U.S. later in the decade. 

Future demand from nuclear power is likely to come from plants that are more than 90% smaller than traditional nuclear plants that could revive the stalled industry following Three Mile Island, Chernobyl, and Fukushima nuclear accidents. 

Bloomberg reports, there are three other companies NuScale Power LLC. in the U.S., China National Nuclear Corp., and Russia’s Rosatom, are all developing mini-reactors that could one day offer an affordable solution to produce carbon-free electricity without monstrous plants.

As renewable energy supplies increase and governments reduce reliance on fossil fuel-derived energy to power grids, mini-nuclear reactors will likely complement solar and wind in the future. 

California’s rolling blackouts earlier this month are the latest example of grid failure, powered by renewables and fossil fuels, an unreliable combination for sustainable and clean power. 

Advocates for nuclear power say a renewables-only dominated grid is unlikely because of power fluctuations must be blended with mini-reactors. 

“At least for now, and for the foreseeable future, it’s difficult to see a renewables-only energy system,” said Chris Colbert, chief strategy officer at Portland, Oregon-based NuScale.

Developers of mini-reactors say plants will be smaller, and the possibility of a massive radiation leak is unlikely. But Edwin Lyman, director of nuclear power safety at the Union of Concerned Scientists, said smaller reactors have weaker systems to prevent a leak. 

Lyman said this is concerning because some of these smaller reactors are expected to be built around populated areas. 

“You could have a smaller reactor but weaker containment and less distance to population centers,” he said. “Paradoxically, a small reactor could end up releasing more material than a large reactor.”

Besides the risk of a radiation accident, smaller plants could lift the overall industry from a ten-year pause in the construction of convention plants. Blending power grids with renewables and mini reactors appear to be the future as countries march towards carbon-free electricity.

Authored by Claudio Grass,

“The more we gained knowledge of these new totalitarian systems of mass-rule, the more we realized not only their similarity of structure, but also the fact that we had to do with a type of dominance that had been known in earlier epochs. We discovered that what the ancients called “tyrannis,” or ‘cheirokratia,” what Sulla or the tyrants of the Italian Rennaissance had practised, and what finally alarmed the world in the French Revolution and under Napoleon, had surprisingly many similarities with modern totalitarianism, although this latter had elements with which they cannot be compared, and although it possessed means of domination unknown in past ages.”

– Willhelm Röpke

This is an old quote I very much admire, it is as relevant today as it was in the past. History does not repeat but it does rhyme. Therefore, I believe it is fair to say that the world has already changed tremendously over the past few months in an irreversible way. The current central planners are already promoting the future reality they have in store for us – to let the old economy and system crash and prepare for government-controlled and planned transition into a new economy that is “green and emission-free”. The new Modern Monetary Theory (MMT) is ready to finance this “man-made paradise” that we have analyzed in detail in the previous two issues of this magazine. The digitalization shift that occurred over the last 20 years also massively contributes and accelerates this process. 

Of course, this technology, like any other, can be used for good or evil, for decentralization and increased independence, or for the concentration of power in the hands of the few and for the exertion of control over everyone else.  The government naturally prefers the latter, as it recognized its practical value. We see real-life implementations of this more and more over the last few years. The establishments and promotion of “anointed experts”, who practice the art of divination while playing God and making decisions “for the greater good”, will inevitably lead to a relentless technocratic system of governance, if it hasn’t already, where individuals as treated as units, to be counted and to be tallied, in a vain attempt to forcefully balance a meaningless equation. 

In the end, and this must be clear by now, this path leads to the full-scale nationalization of the private economy, to a system without private property rights and without individual liberty. The political measures in connection with the Corona crisis have already served as a preview to that bleak future. They also highlighted that the greatest losers in that system are the poorest, the weakest and the most marginalized among us, as low-income workers and small business owners were the hardest hit by the lockdowns and the shutdowns and they’ll be the last to recover, if they recover at all, which seems increasingly unlikely. 

The only way out 

Ludwig von Mises said it best, decades ago: 

“The market system is the basis of our civilization. Its only alternative is the Führer principle.”

People today have to decide for themselves if they want to remain in a system were central planners will be in full control or if they want to opt-out. There are many ways one can do that, depending on their circumstances.  It can be as simple as using private money and decentralized technologies to regain personal sovereignty, privacy and control, or it can be done through jurisdictional diversification of one’s assets and wealth or even by relocating to areas with like-minded people. At the end of the day, we always have a choice. If people want to live in a system that espouses the virtues of socialism and if they like having to sing the international anthem every morning, they can. Whoever likes the sound of that can join, whoever doesn’t can move to a different town, that embraces different ideas and values. 

Let the competition begin, by moving away from a centralized government and allowing people to have options. Allow ideas to freely compete with each other, without forcing anyone to live under a system they don’t like. This would be the crucial first step in the right direction and I personally expect that we are about to take it. I believe we’re at a historical turning point, at the beginning of a shift that will eventually inspire and enable people to organize everything on a much smaller scale, to gather together on the level of small towns and municipalities and to form their own social and political systems, based on the principles that all the people on the local level consent to.

This brings me to the antidote to the current monetary system and all its toxic effects. Physical precious metals, in particular gold and silver, are the insurance against all the arbitrary experiments and monetary manipulation of the last decades. They can’t be printed and controlled by central banks and they cannot be used to support and transmit any of their political goals and agendas. This is why I expect physical precious metals to play a key role in the foundations of any truly free society. Without the financial shackles of fiat money, direct control can be reclaimed and reasserted by the individual. 

The rational aspect of owning physical precious metals

John Maynard Keynes turned the world upside down with his argument that saving is not the lifeblood of investments; instead, he argued, it is a burden for the economy. His opinion was that wise and all-knowing central planners (in other words, a pseudo-benevolent politburo) could correct macro-economic imbalances by manipulating market signals. The implication of such a system, wholly congruent with Marx’s fifth “commandment”, is that it enables a massive centralization of power. However, as is taught (or should be taught) in every political science 101 class: power corrupts, and absolute power corrupts absolutely! 

This central planning precept furthermore contradicts not only common sense and trivial observation, but also the full historical record: indeed, the driving force behind economic health are savings, financial prudence and investment; not reckless spending, mindless consumption, and debt.

In the same way that nihilism is a self-refuting ideology (if existence is meaningless, being the prophet of that meaninglessness is a proof against it), the Keynesian school (and its neoclassical successor) is contradicted by reductio ad absurdum: if all that matters is debt, then let’s all stop working, let’s only print paper, and we’ll solve world hunger!

The problem is exacerbated by the fact that paper money used to be a property title, but has become a debt security. These IOUs represent the promise that future generations will pay off their predecessors’ debt via taxes and inflation. In such an environment, the populace is automatically divided between winners and losers: the former being those close enough to the monetary spigot, the latter everyone else. Moral hazard becomes the rule of the game; merit and talent die with it. It is a fraud of gigantic proportions.

Gold and silver should not be seen as a trading vehicle, but rather as an insurance in a highly uncertain world, a protection against the insanity of central planners, and a safety net against a possible forthcoming crash of the monetary and financial order.

Although it is impossible to determine how fast it will happen, it should be obvious by now that the coming months, especially in the western world, will be dominated by a declining real economy, higher unemployment rates, financial repression measures, such as higher taxation and government restrictions. Interest rates, which are kept artificially low, are causing low or even negative real return on investments. In such an environment, gold is a high-yield asset!

Direct and unencumbered physical ownership of precious metals stored outside of the banking system is therefore essential, if you are interested in a real and practical insurance against the ongoing problems in our monetary system and the uncertainties in our world today.

The case for Switzerland

As a Swiss citizen, I can directly attest to the unique features and advantages of a nation that is defined by its own people’s will, having taken an oath not to pay taxes to foreign reeves. Even before the enforced confederation of 1848, Switzerland was the most industrialized country on mainland Europe. The economy was everywhere and politics nowhere. Even under intense external pressures, Switzerland retained its sovereignty and remained an armed neutral country, resisting two world wars, with a track record that it can be proud of. Up to this day, it still has one of the most decentralized political structures in the world. Its constitution outlines the basis of its political system and its government’s limits, according to the principles of subsidiarity and direct democracy. 

Instruments such as referendums “against the state” and initiatives “from the people” help to keep the state in check and the country as decentralized as possible. And although the last 20 years have seen political pressure put on Switzerland to follow the way paved by the EU rather than its own, a culture of trust, free speech, limited government and respect for private property remains more solid than in most countries on this planet. In other words, the Swiss still understand that the government cannot give away what it has stolen from someone else.

In terms of stability and security, especially from a physical gold investor’s point of view, it is clear that Switzerland has withstood the test of time. Its long-standing neutrality position, its solid non-interventionist foreign policy record and the fact that more than 50% of households in the country are armed, create a safe environment and provide peace of mind both for its citizens and for investors. Furthermore, the strict limits placed on its government’s powers and the long track record of the government staying well within those limits, make confiscation scenarios of precious metals stored under Swiss law very improbable. 

However, because you can never be sure of what the future holds, it always makes sense to look at other jurisdictions too, which might also offer a solid basis. Unfortunately, not many are left on this planet, but the Principality of Liechtenstein is a great candidate. 

Liechtenstein’s unique advantages 

The Principality of Liechtenstein is not in the EU; it is however a member of the European Economic Area and the Schengen visa zone. Although it became independent in 1806, it can be argued that the values exhibited by today’s Liechtenstein were mostly formed after WWII. It was then that today’s monarch, Hans-Adam, had to take over a bankrupt country and effectively managed to turn it into a highly competitive, innovative and agile financial hub of international renown. Liechtenstein is led by one of the oldest noble families in European history and its roots go back into the eleventh century. They have a long-established history as advisers, especially during the Habsburg Monarchy. 

The country’s standing as a reliable business and banking center and the princely house’s reputation as being ahead of the curve are still undeniable today. For example, Liechtenstein and members of the princely family have established the Center for Austrian Economics under the guidance of H.S.H. Prince Michael of Liechtenstein and H.S.H. Prince Philipp of Liechtenstein. Therefore, it is fair to say that the ruling figures of Liechtenstein fully embrace the values of individual and financial freedom and recognize the importance of private property rights. 

The system of government is classified as a constitutional monarchy, with the decision-making power being shared by the monarch and the democratically elected parliament. The Prince retains significant political power, as head of state, and also has veto power. Hans-Adam himself wrote the political treatise “The State in the Third Millennium” in 2009, in which he promotes sound money in the form of gold and silver. In it, he also defends the right of secession right down to the level of the municipality and he is a fierce proponent of limited government, free trade and free speech.

Overall, Liechtenstein remains a solid jurisdiction. It is built on a system of governance that shows great restraint and respect towards individual freedoms, private property, the right to privacy and the financial sovereignty of its people. From a military aspect, Liechtenstein is protected by the Swiss military and has strong ties with Switzerland in general, even though it remains independent when it comes to local laws and international policy. 

Weighing the options 

Both jurisdictions make a convincing case for gold storage, with regard to stability and private property rights, which is infinitely strengthened when compared to the risks and uncertainties that what most other jurisdictions entail. Even from a more practical perspective, it also makes sense to store gold in jurisdictions with ready access to active commercial gold markets, that are not bank-based, as for example is the case for London. Switzerland is a global leader and hub of gold refining and has extensive and vibrant bullion commercial activity. 

Overall, when selecting a location to store parts of your wealth in physical precious metals, one has to look carefully at the political system, as well as the government’s track record through thick and thin. It is also important to consider the country’s “gold culture” and relevant tradition, as in nations with a long history of widespread private gold ownership, governments face formidable obstacles and serious opposition against aggressive legislation, like ownership restrictions, seizures or confiscation orders targeting precious metals. Thus, overall, Switzerland and Liechtenstein definitely seem to have an advantage, at this point in time.