BALTIMORE – Today’s the big day…
Mario “whatever it takes” Draghi is expected to goose up stock markets with more stimulus measures.
On the table is more QE… and further cuts to the key lending rate.
The Chinese feds are also supposed to come forward with another gift to asset holders.
According to the Wall Street Journal, the expectation is for something targeting property purchases and another interest rate cut (which would make it cut No. 7 since last November).
And yesterday, Fed chair Janet Yellen told the Economic Club of Washington:
Were the FOMC [the Fed’s policy setting committee] to delay the start of policy normalization for too long, we would likely end up having to tighten policy relatively abruptly to keep the economy from significantly overshooting both of our goals. Such an abrupt tightening would risk disrupting financial markets and perhaps even inadvertently push the economy into recession.
In Europe, Asia, and America, central bankers, we are told, have the situation in hand.
But these policies – in fact ALL central bank policies for the last 30 years – are either a mistake or flimflam.
…they are perpetrated by either fools or knaves… depending on how you look at it.
…and they are either an intentional transfer of wealth from the people who earned it to the world’s elite insiders. Or the transfer of wealth is an unintended consequence of botched policy.
We lean toward the larceny explanation.
QE may have been a mistake when it was first tried by Japan 20 years ago. But after so many years of trial and error, we now know how it works: It takes wealth from some people (mostly middle-class savers) and gives it to others (mostly wealthy speculators).
This is a problem. Because we know from both theory and experience that trying to rob the rich to make the poor better off doesn’t work. The rich duck and dodge. And the poor lose the incentive to make it on their own.
Now, we’re discovering that the opposite approach doesn’t work either. You can’t rob the poor, give to the rich, and expect the economy to improve.
Already, the European Central Bank’s key lending rate is MINUS 0.2%. We have been amazed and befuddled by these negative rates for a long time. They suggest an impossibility: That the value of money is less than nothing. And if that is so, the value of everything money buys – including labor – must also be less than zero…
…which is such a strange and preposterous thought that it can’t be correct.
But after a few nights of light meditation and heavy drinking – aided by insights from Charles Gave, the chairman of Gavekal Research – we think we have a better understanding of it.
First, says Charles, negative rates are an affront to nature… and an insult to the gods.
Money today is inherently worth more than the same amount of money a year from now. Because something could happen in the intervening period. Someone else could buy the house you wanted. The borrower might die and not pay you back. Or you might die, without ever seeing your money again.
That’s why lenders need to be paid for the risk that something will go wrong…
Meanwhile, the Old Testament tells us that God chased Adam and Eve from the Garden of Eden, with this curse: From now on, “you will earn your bread from the sweat of your brow.”
But the goal of central bank demand management is to upset God’s applecart. The feds want people to consume their bread before they even put on their work gloves.
In the long run, this clearly won’t work. Spending credit is essentially spending someone else’s money. And sooner or later you will run out of other people’s money.
Lord Keynes – from whom the feds draw inspiration – said not to worry. In the long run, he said, we’re all dead anyway.
Keynes is dead. And we are in the long run now.
Further Reading: Bill says that spending credit is spending someone else’s money… and sooner or later you will run out. In his latest investor presentation, Bill reveals the frightening truth of what will happen when the feds finally do run out of other people’s money to spend. It’s going to happen sooner than you think… and the consequences will be worse than anything the world has ever seen. Watch Bill’s warning now.
The ability of computers and software to learn and think has been foreseen for decades.
Today, this is beginning to happen.
Machine learning uses algorithms to analyze data, learn from that data, and make predictions or take actions based on the learning.
Deep learning is a way of loosely designing these algorithms to simulate how a human brain learns.
Computers, using deep learning, can read, analyze… and even write.
Have a look at the picture below. A deep learning algorithm analyzed these pictures and wrote the captions itself… without any human involvement.
A recent machine learning study at the Mount Sinai Medical Center analyzed more than 2,500 patient records and discovered that there are three different types of type 2 diabetes. A machine was able to quickly uncover something that more than 55 years of human research had missed.
The implications are profound. Not only can machine learning dramatically improve the quality of health care – the diabetes discovery is just the tip of the iceberg – but also it will increase the quantity. This will have a particularly big impact on the developing world, where machines could help eliminate a massive doctor shortage.
Earlier this month, Google (NASDAQ:GOOG) – now officially called Alphabet – announced it would open-source its TensorFlow machine learning system.
This may sound like a small move. But think about what happened when the company open-sourced its Android operating system. A massive wave of innovation occurred and a strong ecosystem of technology developed around Android.
Today, despite all the fanfare Apple’s iPhone receives, Android controls about 80% of the market for mobile operating systems.
TensorFlow is not for consumer use. But that gives it an even greater impact. Alphabet is empowering anyone to access – for free – a well-designed, well-structured machine learning platform. Imagine all of the innovation that will happen now that previously prohibitively expensive machine learning will be available to the whole world.
Machine learning and deep learning are what will eventually make an artificial intelligence intelligent. These are the technologies that will transform just about every aspect of our lives within the next decade.
If I had to recommend just one single concept or area to invest in during the next 10 years, this would be it.
P.S. Last night, I hosted a webinar about why the coming wave of tech innovations will be the greatest in more than 40 years… and how investors can profit from it. It was a huge success. And I’d like to thank everyone who participated.
If you couldn’t make this important event, a free replay is now live at www.bonnertraining.com.
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The Utter Insanity of Negative Interest Rates
Imagine someone asking to borrow money from you. Then imagine them telling you they’ll charge you for the loan. Why would anyone make that deal? Bill’s old friend Dan Denning in our London office has the answer…
Two Gun Makers’ Stocks Jump After San Bernardino Shooting
The San Bernardino killing spree is one of the deadliest in U.S. history. Following the news, stocks in Smith & Wesson and Ruger jumped. This is nothing new. Gun sales almost always go up after high-profile shootings.
Bill has stirred up another hornet’s nest with yesterday’s Diary on Facebook CEO Mark Zuckerberg’s decision to gift 99% of his and his wife’s shares in the company to their charity foundation.
Your article about Zuckerberg is the most self-centered, obnoxious view of a human animal I have seen. I’m done with you. Take my name off the mailing list.– Michael R.
In your 12/2 email, you stated: “Giving (Zuckerberg’s) wealth to charities sounds good. But how is the world a better place when capital is moved from the strong grasp of wealth creators to the limp and slimy hands of the zombies in the nonprofit sector… who have never produced a dime of new wealth?”
This is an appalling statement. Nonprofits are not in the business of building wealth. My wife spent 18 years with the foundation of a major metropolitan children’s hospital. They produced a state-of-the-art children’s hospital that attracted top talent and produced ground-breaking research to help very sick children.
They were very successful in all of these areas by all metrics. They aren’t limp, slimy-handed zombies. The children who have lived and their families feel very “wealthy.”
I respect your information and use it to round out my knowledge. But please be respectful of others, just as you would like them to respect you.– Douglas W.
This is the best article I have read in a VERY LONG time… it’s also the best of your articles. It is right on in concept as well as Truth!– Hugh M.
Perhaps you are being a bit hard on Mr. Zuckerberg and underestimating the creativity with which his wealth can be applied.
Though I’m sure there is a tremendous ego boost associated with the public announcement, I would expect he feels lucky to have had his simple idea have such an impact and amass a significant fortune.
If you follow the ego trail a bit farther, he can now play in another sandbox toward ubiquitous Internet access or whatever other social good he believes his money can deliver. And he gets to choose where his money gets spent.
If his toy is effecting social change his way instead of items listed in the pages of the Robb Report is that for us to judge? That’s why they call it HIS money!– David S.
Right on, Bill! The most important word in economics is “incentive.” Giving people money destroys their incentive to live a productive life. What’s good on a micro level (i.e., giving me money) is counterproductive (bad) on a macro level (i.e., giving everybody money).– Tom F.
Well stated, Mr. Bonner. I love your writing and commentaries. Always insightful and thought-provoking. I could not agree more with your comments on nonprofits and charities. They have never amounted to anything that has improved others’ lives.– Bill I.