MIAMI – In our recent meeting in Baltimore with former Fed chief Alan Greenspan, the wily old fox tossed a grenade.
The discussion had arrived at the biggest topic in finance: WWDD?
What would Donald do?
Then the bomb exploded: “Tax cut? A tax hike is more like it…”
Mr. Greenspan was explaining why President Trump’s program won’t work. No tax cut, no Main Street boom.
[Paid-up subscribers of Bill’s monthly publication, The Bill Bonner Letter, can access the full Q&A with Greenspan here.]
Readers ask why we are suddenly writing so much about politics generally… and Donald J. Trump specifically.
We’ve been writing a daily column since the Clinton years. But rarely did we focus on government. And only twice have we gotten so much negative feedback from readers.
The first time was at the end of the 1990s when readers did not appreciate our view of the dot-com boom.
“It’s a fantasy,” we said.
Then, after President George W. Bush invaded Iraq, they thought it was unpatriotic of us to say that it was most likely going to be a disaster.
It turned out to be an even bigger disaster than we had imagined.
Now President Trump has divided readers – one from another and us from many of them, too.
“Now, you need to pay attention to politics,” says Ray Dalio, the manager of the world’s largest hedge fund.
Understanding politics is now crucial to making investment decisions.
Never before have we had a president with so much power (given to him by gutless courts and congresses over the last five decades). And never before have we had a president so ready to use it.
President Trump’s economic plan centers on cutting taxes and regulation while boosting government spending on infrastructure. The combination is supposed to double GDP growth rates, taking them back to where they were when America really was great.
If this seems likely to you, you may want to keep your money in dollar-based assets and profit from the boom you see coming.
If not, sell your stocks and bonds. They’ve had a marvelous 35-year run; time to get out.
As to the regulations, we have no doubt our new president is on the right track. Regulations are win-lose deals. They impose restrictions, costs, and requirements that get in the way of voluntary win-win deals.
Remember, there’s no magic or mystery to our formula: S = rv (w-w – w-l).
The net satisfaction in a society equals the real value of the win-win deals minus the cost of the win-lose deals.
To make it super simple: The fewer deals in which someone is forced to do something he doesn’t want to do (win-lose), the better off we all are.
The biggest win-lose deals in America fit into three major categories with three major winners – all of them swamp critters:
The military-industrial-security complex at a rate of about $1 trillion a year, including the estimated $7 trillion bill for the Iraq debacle.
The Wall Street-Fed complex, with its control of the fake-money system.
The medical-pharmaceutical-zombie complex.
To “drain the swamp,” Mr. Trump must take them on. Not just symbolically… not individually by calling out single companies and persons… and not by tweet.
Instead, he has to slash their budgets, clip their crony deals, and curb their power. He will have to limit their “wins” so that the average American feels his burden lightening and his yoke loosening.
And he can’t do it using any of the Fed’s trickery.
It is no use cutting taxes if government spending isn’t also cut. And there’s no use pretending to “stimulate” growth by lowering borrowing costs. It won’t work.
Central banks in the U.S., Japan, and Europe have been at it for years, including the last seven years of near-zero interest rates. We’ve seen what happens: The rich get richer; the poor and middle classes lose ground.
Ultra-low interest rates mislead people. This causes misallocations of capital… and mistakes.
The losers, in the real Main Street economy, stoop under the burden. The winners are flush as the funny-money funds Wall Street, the empire… and the welfare state.
The best thing about this fake-money system – at least from the insiders’ point of view – is that the masses don’t know what is going on.
Not one person in 10,000 understands how he is ripped off by his own money.
And who knows how much military spending is enough?
“You can’t be too safe,” people say to one another.
Everything is subject to the law of declining marginal utility: The more you have of something, the less each additional increment is worth to you.
And as we explored in our book Hormegeddon: How Too Much of a Good Thing Leads to Disaster, the excess often becomes toxic.
One dessert is great; by the time you’ve eaten your fifth, you’re ready to throw up. Excess military spending is worse: It leads to meddling and reckless adventurism.
As President Eisenhower warned in his farewell address, eventually, the military you pay to protect you becomes a danger – to you.
Muddling into pointless wars and destabilizing foreign governments makes you less safe. And by the time you figure it out and try to bring the spooks and soldiers under control, it’s too late.
They have the guns, after all.
More about the medical-pharmaceutical-zombie complex… tomorrow.
BY Jim Rickards, Editor, Defense Technology Alert
Editor’s Note: Jim Rickards has been an adviser to the U.S. intelligence community and the Office of the Secretary of Defense in the Pentagon, so it’s a good idea to listen when he talks about investing in defense technologies…
Donald Trump clearly promised two things during his presidential campaign: 1) to implement a $1 trillion spending program and 2) to Make America’s Military great again.
Since I knew Trump would win days before he actually did, I took his two promises to the bank. Just days later, I saw a Forbes report:
“President Trump is Likely to Boost the U.S. Military’s Spending By $500 Billion to $1 Trillion”
The countdown clock had started speed ticking on a time-sensitive investment window in the defense spending space. It could literally change the world, like Ronald Reagan’s military buildup did.
And the sum of money at stake in this industry is huge. As I’m sure you know, America has the largest military budget of any country in the world.
In fact, at an annual budget of $600 billion, we spend more on our military than the next seven biggest countries in the entire world. When you zoom in and look at our annual budget, we spent 54 cents of every $1 in discretionary government spending on our military.
The number is so big that it’s almost too hard to imagine so here’s something you’ll find shocking: At these rates we currently spend $1,137,747 per minute on tanks, planes, cyber security, fuel and new tech innovations for our troops.
And Trump’s spending initiative could nearly double what we’re spending right now. The United States could soon be effectively spending nearly $2,000,000 per minute on new defense technology and equipment for our military. It’s a rare window where just about everyone agrees that military spending is going to boom.
And if you follow the money, you’ll find that much of it ends in the hands of public companies that you can buy in the stock market and make huge profits from.
This next wave of spending will lead to military technological advancements that will also spread to the civilian world.
The internet, Las Vegas, satellites GPS and Silicon Valley start-ups are just a few examples of how the civilian world and the defense technology world are connected.
– Jim Rickards
P.S. Right now, we’re seeing an investing window of opportunity that’s opened only five times in the past 60 years: once during the Korean War… once during the Vietnam War… once during the Reagan-era buildout… once after 9/11… and right now with Trump’s coming spending wave…
And in my latest presentation, I explain how you can reap the massive types of predictable and repeated gains that cropped up the previous four times. Click here now for all the details.
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.
On Monday, Bill confessed to having been an illegal alien for 10 years… in France.
And it’s prompted a flood of responses… not all of them positive.
Is Bill Bonner an open-borders, mass-amnesty supporter? I certainly hope not. Per his rather peculiar illegal alien letter, you have to wonder what he is trying to convey. He and his family were well-educated First-Worlders immigrating to another First-World country, not Third-World peasants drawn to a First-World country because of all the free-stuff they could obtain.
Milton Friedman said that first-world countries can’t have open borders, mass amnesty (i.e., go to the front of the line), and a large welfare state. The three are a toxic combination.
– Frank W.
Undocumented Mexicans have been coming back and forth across our borders even before we had borders. Now they come through Mexico from all over South America, Cuba, South Africa, Asia, and the Middle East.
Why? Because the governments of the countries they are from are not taking care of their people, not giving them good educations, and not offering jobs and opportunities. And many of them are run by dictators.
Should we and all the more prosperous countries around the world continue to take in and try to assimilate all these millions of refugees? Or should we try and change the governments in those countries and help rebuild those countries so all those refugees can return to their country of origin and be safe and prosperous there?
We can only offer our system of governing to those that want to follow it and some help when countries and people have natural catastrophes, civil wars and are starving.
– Jim B.
Loved your piece about your status in France. It’s easy to blame the other guy about your own failures. Education is the key to success. The Rust Belt was left out because they were foolish and didn’t pursue it. I did. Now, I can comfortably retire and travel, too. Pity too few didn’t – and still don’t – see the way.
– Barbara B.
And in response to the recent brouhaha over Bill’s comments on President Trump…
I can believe that reader feedback is running 3-to-1 against you. But I’m with you, Bonner. I’m glad you had the courage to post that reader’s opinion. I’ll be renewing my subscription with you.
After Trump’s first three business days in office, I feel as if he is doing exactly what I would be doing if my frequent day dream came true and I was POTUS. I would dismantle the government bureaucracy as necessary and get the train back on the tracks.
– Shane M.
Here in Britain we support Bill’s view. We hope Trump will do well, and we agree that the elites need a kick up the backside. But Bill’s view of the big picture is that DT will come up against a number of big obstacles. The Deep State will resist change, and Congress will baulk at the expenditure. This seems a pretty reasonable opinion to us.
– Mike W.
Never stop writing, with such clarity and courage, your observations of our new leader and his gang. If ever there was a time for conscious Americans to clear the haze of groupthink and hold fast to our constitutional guidelines, it is now! Thank you, Bill, for not abandoning us.
– Brenda H.
What great nation has ever been built on a citizenry so fragile that their best (only) response to that with which they disagree is to put their hands over their ears and squawk like chickens (or, alternatively, cancel their subscriptions). Just wondering…
– Dave H.