Sam Bankman-Badly-Needed-Reality-Check-Fried

Submitted by QTR’s Fringe Finance

In the world of finance, moments that restore faith in reality are few and far between. However, if there was one such moment last week, it was the conviction of Sam Bankman-Fried. This event momentarily bolstered my confidence not just in regulators, but in the very fabric of reality.

It’s important to give credit where it’s due. Many of my readers, along with numerous individuals I follow online, continually chide regulators. Just a year ago, I echoed these sentiments when it became glaringly clear that FTX was a colossal fraud and SBF wasn’t thrown in jail overnight.

Now, a year on, I must congratulate not only the regulators but also the legal system.

Everyone’s diligence in gathering evidence and building a robust case was instrumental in securing a conviction against Bankman-Fried at trial. Prosecutors’ work was both swift (a year is lightning fast to secure a conviction) and commendable.

In addition to restoring my faith in justice and truth, Bankman-Fried’s conviction also rekindled my trust in reality.

Most of my readers are aware that my macro perspective on both markets and the economy is that, in plain terms, that we’re on the brink of something cataclysmic, which will likely lead to a fresh round of extreme quantitative easing from the Federal Reserve.

And I know it’s controversial, but my reasoning has simply come from my belief that several decades of the easiest money in history cannot then meet the fastest acceleration of interest rates in recent history without causing an explosion somewhere. In other words, my thesis for almost everything that I own is based simply on math and common sense.

And while that sounds like the simplest and likely most reasonable way to invest, we all know that the market can stay irrational longer than most people can stay solvent.

That saying became popular because the stock market, subject to micromanagement from the central bank and the government, basically does whatever the fuck it wants (technical financial term) at any and all times.

Reality doesn’t play much of a role in a market that is driven solely by passive investing, algorithms, options gamma, revenue-less garbage growth companies, insane valuations, brain-dead morons like Cathie Wood, clueless PhD economists at the central bank, Tom Lee on CNBC every day and the next round of bilge to exit the mouth of our Treasury Secretary at some bullshit fireside chat in Belgium.

In other words, it is anything but reality that has been driving the stock market, especially recently.

I’ve written at length about how frustrating it has been for me to have been short the market for the better part of the last two years while rates are rising and to have been wrong. I’ve also written about the fact that the market does generally take its obligatory plunge after rate hikes have concluded, and around the time the Fed begins to cut, which it seems we are not far off from.

But the crux of all this reasoning relies on some semblance of rational thought and reality, which has been sorely lacking over the last two years.

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The Bankman-Fried trial has been a solitary beacon of both efficiency and reality over the last week. As the stock market continues to melt up, despite the fact that we are on the verge of World War III, at least the Bankman-Fried conviction was quick and easily reconciled in the minds of pretty much everybody who had paid attention to it or followed along with it.

Everybody knew he was guilty, everybody wanted him to be convicted, and that’s what happened.

I also, sadly, realize there is still time for a major disappointment when it comes to his sentencing. In situations like this, news outlets are always in a rush to report what the maximum sentence could be. In the case of Bankman-Fried, it’s something like 110 years. What he will be dealt may be vastly different, but one thing is for sure: he’s very likely going to spend time in prison.

Photo: Bloomberg

Even though I’m not holding my breath for the sentencing, I am encouraged by both the injection of reality and the justice of how well his case was handled.

And as I’ve written over the last month, if any of the reality of the outside world – if even an iota of it – starts to seep into the stock market the way it just seeped into Sam Bankman-Fried’s world, the shit will hit the fan quickly and, hilariously, will shock almost everybody.

I’m sure that won’t happen. Instead, the market will figure out some new way to justify insane valuations on the cusp of World War III and a reduction of the money supply. Something will likely then break, and they’ll wind up doing yield curve control and additional quantitative easing. The price of metals, which would be expected to soar, will probably remain suppressed due to paper trading, and the whole nauseating cycle can begin all over again.

But at least for today, I’m going to bask in the much sought-after reality check of the events that took place last week. At least for today, one plus one equals two again. Oh happy day.

QTR’s Disclaimer: I am an idiot and often get things wrong and lose money. I may own or transact in any names mentioned in this piece at any time without warning. Contributor posts and aggregated posts have not been fact checked and are the opinions of their authors. This is not a recommendation to buy or sell any stocks or securities, just my opinions. I often lose money on positions I trade/invest in. I may add any name mentioned in this article and sell any name mentioned in this piece at any time, without further warning. None of this is a solicitation to buy or sell securities. These positions can change immediately as soon as I publish this, with or without notice. You are on your own. Do not make decisions based on my blog. I exist on the fringe. The publisher does not guarantee the accuracy or completeness of the information provided in this page. These are not the opinions of any of my employers, partners, or associates. I did my best to be honest about my disclosures but can’t guarantee I am right; I write these posts after a couple beers sometimes. Also, I just straight up get shit wrong a lot. I mention it twice because it’s that important.