After 35 years of waiting… so many false signals… so often deceived… so often disappointed… bond bears gathered on rooftops as though awaiting the Second Coming.
Many times, investors have said to themselves, “This is it! This is the end of the Great Bull Market in Bonds!”
And then, at the appointed hour, expecting the rapture… they took the leap of faith… only to come crashing down on the rocks below.
In 2008, in 2012, in 2014… Each time, the market made fools of them.
Now, weary… wary… and nearly broke… they make their bets as though they were setting an explosive charge at a federal building.
“Bond rout accelerates as Trump stimulus vow spurs inflation bets,” reports the Financial Times.
More than $1 trillion has been clipped from global bond values in the last week.
Meanwhile, the Dow continues to move up… closing in on 19,000… and a new all-time high.
This is the “Trump trade” – the bet that the incoming administration will be good for stock prices and bad for bonds.
It will be good for stocks, they believe, because “The Donald” proposes to lower corporate taxes, remove regulation that stifles certain sectors, and reward other sectors – infrastructure and the military – with more money.
It will be bad for bonds because all this new spending will have to come from somewhere.
The federal government’s budget deficit is already running at 3% (of GDP). You can see where that leads. The economy is growing at only a 1% rate. That means it is adding three times as much debt as output.
The Trump plan calls for increased spending… while cutting taxes. Let’s see… Lower taxes plus even higher spending… hmmm. We’re getting a deja-vu feeling all over again.
As colleague Chris Lowe points out to readers of our global “big trends” advisory, Inner Circle, estimates for the U.S. government spending under a Trump presidency call for an increase in the national debt over the next decade of $5.3 trillion.
Those are the dots that we’re looking at. And what we see are higher rates of inflation.
We’re not so sure about high stock prices, though. We suspect that the stock market is going to take a tumble in the not-too-distant future.
As to bonds, however, the “Trump Trade” looks to us like a sure winner.
But wait. It can’t be that easy. Even the newspapers, major investment advisers, and cockamamie, Nobel prize–winning economists see the same thing. They’re all recommending the “Trump Trade.”
And when everyone sees the same thing, we must all be going blind.
One of the objections to the “more inflation” hypothesis comes from our friend and colleague David Stockman, who served as President Reagan’s chief budget adviser.
He believes the “reflation trade” (that is, betting that more phony “stimulus” will continue to boost the market) is for chumps.
Because the fiscal stimulus program won’t happen. It will run headlong into the black hole of U.S. government finances… and disappear.
He has a point. Just because “The Donald” calls for more spending, it doesn’t mean Congress will go along. Here’s David:
Folks, the whole Trump reflation trade is based on blithering nonsense. Uncle Sam will be stimulating exactly nothing in the years ahead because he is dead broke.
Moreover, even before President Obama ambles out of the White House, suitcase in hand, the Trump-Ryan-regulars-Tea Party gang will soon be lined up in circular fashion firing vehemently.
But it won’t be at the ballyhooed stimulus; it will be at each other as the looming expiration (March 15) of the nation’s $20 trillion public debt ceiling crashes upon the smoldering ruins of the Beltway Establishment.
Even without an assumed recession, the updated Congressional Budget Office deficit projections will soar past $1 trillion annually by the later years of Trump’s (only) term.
Yes, the feds are broke. And yes, Republicans did block previous efforts at fiscal stimulus. But we wouldn’t give up on the “reflation trade” completely.
This may or may not turn out to be the best time to refinance your mortgage and jump off…
But it is time to look for the ladder… More tomorrow.
Further Reading: This week, we’ve been alerting you to unprecedented warning signs in credit markets all around the world… Bill’s longtime friend and founder of Stansberry Research Porter Stansberry is calling this a historic crisis. This is a critical moment for self-directed investors.
That’s exactly why Porter and his team are putting together a one-time presentation on Stansberry’s Big Trade.
This special event is TONIGHT at 8 p.m. ET. He’ll tell you exactly what happens next and what you need to do to prepare. If you still haven’t reserved your spot yet, we urge you to do so now by clicking here.
BY CHRIS LOWE, EDITOR AT LARGE
Another crack in the market to look out for is in the emerging market…
Since Donald Trump upset the applecart last Tuesday, the iShares Emerging Markets ETF (EEM) – the big emerging stock market ETF – has fallen by more than 7%.
The dollar is the world’s reserve currency. It’s the closest thing to a global currency we have.
Investors are fretting that higher interest rates under President Trump will lead to a tightening of credit conditions around the world.
And that emerging markets will suffer the worst of the fallout…
There Is a 100% Chance of Recession Next Year
Today, we’re taking on a big economic mystery… And investors who don’t understand these concepts are going to get wiped out.
How Trump Weakens the European Union
Fresh off Brexit, the election of Donald Trump shows the world is wary of big government. Trump’s policies will test the strength of the already fragile, big-government EU.
Bonds Just Had Their Worst Week in 35 Years
Bloomberg estimates over $1 trillion was lost in the bond market last week. Here’s why investors were fleeing the fixed-income market.
Diary readers continue to be divided in their opinions over Bill’s recent comments on President-elect Trump.
But first, one concerned Diary reader wants to know more about the Deep State…
You keep talking about the “Deep State,” but you never name any of the people who are supposedly actually running the government. You must know who they are. How about a list of 10 or 20 of the top Deep Staters?
– James F.
Chris’ Comment: The Deep State holds no meetings. It has no roll call. But in the November 2015 issue of The Bill Bonner Letter, Bill gave about as detailed a description as you’ll find…
When people think of the Deep State, they are generally referring to the permanent government run as a collusion between the elite of corporate America and the national security industry. They think of the “military industrial complex” that General Eisenhower said we “must guard against” in his farewell address of 1961.
It is a curious group; some of its main components are not even American citizens. A foreign government, Israel, occupies a dominant position in the Deep State.
Through its billionaire political donors – Haim Saban, Paul Singer, and Sheldon Adelson – and its lobbyists at AIPAC and other well-funded organizations, it exerts more influence on U.S. foreign policy than 200 million voters.
Many international corporations, global organizations, and supra-government agencies are also part of the Deep State. And overseas banks, with foreign owners, are major beneficiaries.
Together, they – along with domestic favored industries, the bureaucracy itself, special interests, and cronies of various stripes and persuasions – run the U.S. government and control the police, the armed forces, the financial industry, the medical industry, the education industry, and other major parts of the economy.
And now, the comments from Bill’s supporters…
Trump is a breath of fresh air, as he has already shaken the foundations of a smug, complacent, arrogant political elite who have brought ridicule and shame upon the American population.
I love the column. Keep up the good work.
– E. A. S.
In the days after the election (and even yet today, almost one week removed), I couldn’t understand all the despondency by Hillary supporters or the celebrations by the Trump camp. Thanks to Mr. Bonner, I completely understand that both political parties in the U.S. have one belief that underlies all their promises: Government is the solution to our problems.
Yet, as we well know (again, thanks to Mr. Bonner), the government, following the Pareto principle, is the cause of at least 80% of our problems. Why should we believe that the government is going to fix the problems that "it" caused?
Of course, therein lies the problem with libertarians. We have no interest in government because we see it as the root of all evil. How does someone who is anti-government run in and win an election for a position in the government?
– Greg B.
And finally, Bill’s critics…
What an absolute cynical world you perpetuate! Flee the country, if you must; take a deep breath, do some yoga or meditation. No matter who got elected, your gloom-and-doom attitude continues.
Lighten up a little and smile. Maybe cuddle up with a good inspirational book. A dose of "positive" helps revive the soul and just maybe the world won’t explode in a big ball of flames.
– Tana B.
You did not vote.
You see no light in anything. You just use sarcasm to degrade.
You bad-mouth all debt. Yet, our country was built using debt productively. When we rebuild our infrastructure that is using debt for Real assets that we need. Also will create jobs that we also need.
You are part of the 1%. What are you doing with your money? You are putting it to work in America on companies with innovation, futuristic technology, and young, aggressive leaders with vision. But bad-mouthing all the way.
The Deep State just got a wake-up call. It won’t all happen overnight. Nothing good does. But it is a beginning at least. A slap to the Nanny State. We need to push forward, not live in the past, get on the move, do not sit back and bi**h.
Bill, you are better than this. Help America. Don’t sit there bad-mouthing with no positive thoughts or actions
– Lynda T.
Bill’s friend and Palm Beach Research Group founder Tom Dyson recently sat down with Porter Stansberry to discuss his Big Trade. It’s Porter’s plan for profiting from “the great unwinding of the corporate bond markets” that will begin next year. You can watch it here.