MIAMI – “The CQ certainly went down when you came into the hotel,” said one of our two sons here with us.
“What’s the CQ?”
“The cool quotient.”
The Edition hotel in Miami’s South Beach has so much cool, your fuddy-duddy editor barely put a dent in it. Sleek… white… expensive… It would be a great hotel for a family from São Paulo. Or from Paris.
Coming from Baltimore for a business meeting, however, it seemed almost excessive, trying too hard to make a good impression.
We are attending an unusual meeting. Analysts, editors, economists – we are all guessing about what will happen next and how we can profit from it.
“Private property will disappear in my lifetime,” said one, boldly.
This was such an explosive prediction, fragments must have lodged in our brain, irritating the surrounding tissue.
We thought about it. At first, it sounded crazy. Now, we’re not so sure.
But we’ll come back to that tomorrow…
We left off yesterday describing the three zombie-crony zones where no politician wants to go: entitlements, Wall Street, and the Pentagon. The entitlees provide the votes. Wall Street provides the fake money. The Pentagon provides the fake enemies and the illusion of security.
A friend wrote to suggest a fourth candidate:
I would nominate a fourth big deal in the win-lose category: the K–12/university-industrial complex. Run by the employees, for the employees. Consumes more than ten percent of GDP.
Together, all these public-private complexes, with their win-lose deals forced onto the American people, cost the Main Street economy trillions of dollars per year. How do we know they’re win-lose deals? Because you have to pay for them whether you want them or not.
So if Donald Trump is to keep his promises, he must bring these programs under control, where he will butt heads with the biggest Deep State players.
We discussed two of them yesterday: the military/security industry and Wall Street. We noted how hard it would be to cut off their funding in any serious way.
Without spending reductions, tax cuts are meaningless and futile. They would lead to bigger deficits, which would have to be covered with more fake money. That would lead to more distortions… more mistakes… and end up leaving the average American even worse off.
Alan Greenspan said as much (or more!) when he met with our group last month:
I maintained for quite a while that our entitlements, which were legally mandated, are rising at such a pace that the data show unequivocally, going back to 1965, that the sum of gross domestic savings plus entitlements as a percent of gross domestic product [GDP] has been a constant. It wiggles a little bit (I shouldn’t say it’s a constant) but has no trend.
That means, assuming that the driving force is entitlements – which it’s got to be because it’s mandated – every dollar increase in entitlements decreases the gross amount, the amount of gross domestic savings, by $1.
Since we can borrow from abroad and have now built up a debt of $8 trillion because our current account balance continued to erode, we’re now in a position… where we can no longer keep gross domestic investment at a higher level in gross domestic savings or, in fact, even close.
So we’re going to be in a position now where gross domestic investment, because it’s not being funded, will start to decline as a percent of GDP. If that happens, productivity growth will slow from where it is even now. And that means that GDP per capita is going to rise hardly at all.
Using fewer words, Dr. Greenspan’s point (much the same as that of our book Hormegeddon) was… the more a government spends, the less an economy grows.
As promised, we focus today on the crony-zombie complex that is expanding fastest and probably has the widest public support: entitlements.
Since 2000, the economy has doubled. Federal spending on medical care has gone up five times.
Rare is the voter who minds a win-lose deal if he thinks he is on the winning side. And he’s happy to vote for the politician who gives it to him. This makes spending on medical care, drugs, and pensions particularly difficult to stop. In the swamp itself, the cronies fight hard to protect it. And many voters, too, want it to continue.
Drugmakers, hip replacers, hospitals – they all lobby for more “public support” from the feds. Already in Japan, more adult diapers are sold than baby diapers. As the U.S. population ages, too, the diaper makers are looking forward to fat years.
The customers, too, want more of other people’s money. Old people want fat pensions and thin medical care bills. And old people vote.
As the medical/pharmaceutical industry rolls out new drugs and new treatments, how can the geezers say no? Someone else is picking up the tab.
Entitlements – like insults – are easy to throw out and hard to take back.
In the past, politicians could bribe older voters with “social welfare” spending. As long as the economy grew fast enough, there was no problem. Yesterday’s promises could be covered with today’s revenues.
But now, the economy is growing only about half as fast as it did when America really was great – in the ’50s and ’60s.
The number of young people paying taxes is going down… and they earn no more than their parents. So, projected federal revenues need to be marked down, too.
Many retirees think they already “paid for” their benefits. Maybe they did. But the feds spent the money on other crony-zombie projects. So, the only way they can make good on their promises is to squeeze younger citizens.
And when that blood runs out, they have to borrow… which means squeezing the money out of an even younger group, some of whom haven’t even been born yet.
Old people win. Young people lose.
This makes scoundrels out of us and chumps out of the young. But the scoundrels like it and the young don’t vote.
BY Louis James, Editor, International Speculator
Many people seem to think they have missed the boat on gold.
If the bottom at the end of 2015 was like the bottom in late 2008, then 2016 was like 2009, and there’s plenty of money to be made buying the right stocks now and going forward.
How much higher can it go?
The chart below provides some perspective. It shows the rise of gold in past bull markets and the current gold bull thus far. They are all shown starting from the current bottom in late 2015, so the past lines extend into the future.
The current bull is that little purple worm in the lower left. As you can see, it has a long way upward to go just to match the smallest of the past bulls. As wild as it sounds, if gold rises as much as it did previously, it could hit $6,000 to $8,300 per ounce. It could go well beyond that, of course. Or it could fall short.
Key point: If we are truly in a new bull market for gold, it would be a statistical rarity for it to finish anytime soon, or anywhere near current price levels.
This is important to keep in mind if we get a big correction soon. As you can also see in the chart, it’s not uncommon for gold to spike and retreat in the midst of a sustained bull run. That means gold could retreat below $1,100, and it wouldn’t be unusual.
It would, in our view, be a buying opportunity. Does that mean you should wait for a correction before buying anything? No. Buy on down days for gold, certainly.
There’s no need to pay more than you have to, even for a stock with tremendous potential. But if you wait for a correction and it doesn’t happen, you’ll be kicking yourself later.
– Louis James
P.S. A gold mine I think is going to be the richest mine in the world is coming online in just a couple months. This could transform the tiny company building it into one of the biggest and most profitable mining companies ever. Best of all, it’s not too late to buy this stock before it skyrockets. Find the full details of my visit to the mine here.
Markets Like Trump
Say what you like about President Trump. But so far, at least, investors prefer his version of politics to the version the Democrats were putting forward.
Gold Hits Highest Level in Three Months
On Monday, gold hit its highest price since November 10… just after Election Day. The weaker dollar is a big reason behind the move.
Exactly When to Pull the Trigger on Gold Stocks
A gold-investing expert (one of his stock recommendations just doubled overnight) shares his contrarian secrets on when exactly to buy gold stocks – and maximize your gains.
Bill’s essays continue to inspire gobs of feedback from Diary readers. And yesterday’s essay – “Ripped Off by Your Own Money” – was no different.
Bill, you’re singing to the choir as far as I’m concerned. Your right about no one or very few actually understanding what is going on. I have spent my retirement years (14 years) trying to make sure that I, at least, know what’s going on for my own protection and that of my family.
I have a lot of skin in this game because my first ancestor came to the Americas in 1634 and over the last 383 years one of my ancestors fought in every conflict or war this country has been involved in. One that fought with Washington’s Continental Army, was with Washington at Valley Forge and was wounded in the battle of Saratoga in 1778. My father and two of his brothers fought in WWII.
It is therefore my duty, as a citizen of this country, to know what is going on and try to do my “duty” to make sure we follow our Constitution and our laws. Yes, you are singing to the choir when you sing to me and a few others but for everybody else, there is no sheet music available to sing from.
– James B.
Bill, I read your comments with dismay and then cry for the US when I read the comments by many of your critics. You object to government regulations, in spite of the fact that the economic crash of 2008 resulted from the banks having no adult supervision. You complain about the arbitrary allocation of capital by manipulation of interest rates, yet you support the basic reason this action is necessary. The uneven distribution of wealth has distorted how wealth is used to fuel the economy based on a free market.
Regulation has not affected the market. The market is not functioning effectively because most people do not have the ability to buy what they want and need. The money is owned by the rich and not being spent to benefit the overall free market.
The solution is to once again raise interest rates on the rich. But, this concept would threaten your wealth and the wealth of your associates, so it is ignored. As a consequence, in desperation people elected Trump with the hope he would force the wealth back into the middle class. Unfortunately, the voters have been fooled once again. Next time the reaction will not be so peaceful.
– Edmund S.
Bill, I’m happy with your comments on Trump and telling the truth as you see it. As far as I’m concerned Trump is a loser and has no understanding of how to do what he says he wants to do.
The other part of the saga is that the rich and powerful NEVER CONCEDE their riches and power easily and usually have the means to sidetrack or otherwise defeat you. He alleges he will have Congress pass legislation to reduce their power, tenure and the ability to move into lobbying jobs easily. RIGHT!!! Keep the comments coming?
– Robert E.
I worked in the defense industry for over 30 years. The waste, fraud and corruption is rampant in the DOD, CIA and DIA. It is covered up by secret classification and intimidation, like the FBI under Hoover or like the CIA did and probably still does. We have not won a war or conflict since WWII even though we have spent more than the rest of the world combined. What’s wrong?
For one thing it’s the cover up with secret classifications and the money it protects. We are building a military to fight WWII again if it breaks out but our enemies have moved on.
Do we need over 1000 to 2000 stealth F35 planes to fight the ISIS air force or the Syrian air force? Do we need 7000 nuclear weapons, each 150 to 1000 times the yield of a Hiroshima bomb? Russia also has 7000 which if 7 out of the 7000 hit us we would be pretty much wiped out.
By the way, the last test of a missile defense, which was rigged, stopped only 50% of the incoming war heads. This is after more than 30 years of development and billions spent.
It’s time to fix our own roads and bridges and maybe build some high speed trains. After all China has over 6000 miles of high speed, over 200 mph, trains and we have none. I would rather have some high speed trains than 1000 F35s.
– Paul L.
Do you have experience inside the Deep State like Diary reader Paul L.? If so, we’d love to hear it.
Write to us at firstname.lastname@example.org.
Our friend Louis James, the senior investment strategist over at Casey Research, just handed his subscribers a 100% gain in less than 24 hours. And now he’s at it again…
Louis released a brand-new presentation about an isolated mine with gold veins as thick as his thigh running along the entire wall. And the best part is… the mine isn’t going online for two more months. So investors who get in now could see gains of 1,000% or more once it does. Get the full details here.