LOVINGSTON, VIRGINIA – On Wednesday, the Dow, the S&P 500, and the Nasdaq closed at record highs for the fifth straight day.
The last time this happened was in 1992.
Meanwhile, President Trump held his first presidential press conference. It was an amazing affair… unlike anything we’ve ever seen.
But beneath the newness is oldness.
It is still early in the Trump term; the important questions are still unanswered.
“Draining the swamp” would be something really new. But is that what is going on?
Is it about taking on the Deep State? Or just taking advantage of it to punish one group of insiders and reward another?
Many of Trump’s supporters are happy just to see their team winning. They want their enemies brought low and their friends raised up by the new president.
They will be pleased to see sanctimonious and corrupt elites replaced by new winners with different goals and attitudes.
Trouble is, you can’t make America great by replacing one group of larcenous insiders with another.
In fact, you can’t do it by selecting the winners at all, no matter who they are.
Let’s go back to basics…
What separates a rich country from a poor one?
Yes, the rich have more money.
But money is just a claim on wealth. It is not real wealth. How do rich countries get more wealth?
Two of the richest countries – Japan and Switzerland – have few natural resources. And two of the world’s poorest countries – Venezuela and the Congo – have plenty of natural resources of all kinds.
Japan and Switzerland have very different cultures. So do Venezuela and the Congo.
Political institutions? Infrastructure? Educational systems?
Well, dear reader, now you’re just guessing wildly…
All of those things make a difference but none explains it. Even in the same country – with the same infrastructure, educational system, and political and legal institutions available to everyone – you see vast differences in wealth.
In Baltimore, for example, almost half the city lives more like residents of Venezuela or the Congo than like the Japanese or the Swiss.
And many African nations have taken the political models of the U.S., France, or Britain and applied them almost word for word… but with greatly different results.
As we explained recently, all else equal, a society that encourages win-win transactions over win-lose transactions will grow richer.
But here’s another way to look at it…
In a sense, everything is built from the same atoms. We all have the same basic matter at hand; it all depends on how we put it together.
A skyscraper is nothing more than various basic elements… assembled in a certain way. Poor tribesmen in the Amazon don’t know how to do it; rich people in New York, Tokyo, or Paris do.
The difference is “information.” And knowledge. They are what tells us how to build a nuclear power plant… or make ice cream.
Information is also critical to an economy. How many ice cream parlors do we need… how much steel should we produce… how do you make a hit TV show?
An economy is a learning system. The participants learn every day. Then, they apply the lessons… test further… and learn more.
Do consumers want cherry Frappuccinos? Can you make a profit by selling ice cream cones to Eskimos? What is the real price of capital?
Markets give you the answers… and inform the economy… which reacts with more testing, more building, more trials, and more errors.
As these tests progress, the economy accumulates information… and the people in it grow richer.
Diary readers will already be racing to the important insight: Information drowns in the swamp.
First, dishonest money provides inaccurate information. You build a million-dollar spec house. It sells immediately. You build more of them. Then the market crashes.
Later, you realize that the information was false, based on fake money and fake credit provided at phony, artificially low interest rates. An economy doesn’t need a high or low interest rate; it needs a true rate.
Second, markets must be allowed to speak. If the feds rush to stop a correction, they are slapping duct tape over Mr. Market’s mouth, stopping him from explaining himself.
Third, economies must be allowed to ditch their mistakes. Otherwise, the zombies take up all the parking places and hog all the savings. Learning stops.
When a company goes bankrupt, it should be taken out and buried. Keeping it on life support… providing below-market financing… and rewarding its managers with million-dollar bonuses sends the wrong information.
Fourth, deals must be win-win. Win-lose deals – the kind the swamp critters specialize in – don’t permit willing sellers and willing buyers to find accurate prices… and the information they carry.
Instead, price information derived from win-lose deals is like “intelligence” tortured out of a prisoner: Rely on it at your own peril!
The other important feature of a win-win deal is that you never know in advance who the biggest winner will be. Instead, Mr. Market… nature… and chance decide.
This outcome then gives us the important feedback we need.
By contrast, imposing a winner – by force – stops the whole learning process.
Drain the swamp!
BY CHRIS LOWE, EDITOR AT LARGE
Goldman Sachs shares just hit a new all-time high.
As you can see from today’s chart, yesterday they closed at $251 – above the $249 previous all-time high set in 2007 before the financial crisis.
This follows President Trump appointing a slew of Goldman alumni to key positions in his administration.
They include his chief strategist, Steve Bannon… his Treasury secretary, Steve Mnuchin… the chairman of his National Economic Council, Gary Cohn… and his nominee for chair of the Securities and Exchange Commission, Jay Clayton… to name just a few.
– Chris Lowe
Politics Is Stressing Out Americans
Over the course of the decade, psychologists found that stress in American life, on the whole, has been gradually decreasing. Then came the elections last November…
Warren Buffett Buys Apple
This week, we learned that Warren Buffett’s Berkshire Hathaway has become the fifth largest investor in Apple… after a nearly lifelong aversion to technology stocks.
Get Ready for the Coming Wave of Tech IPOs
Hundreds of the greatest technology companies in history are just waiting to go public. It’s like a massive dam that is ready to explode. And if you’re prepared, you have the chance to own the future.
The kind words continue to pour in after Bill wrote about visiting his dying mother in Tuesday’s Diary, “An Homage to Love.”
Just read your powerful comments regarding your mother and her closeness to family members who have already gone to the world of spirits. She does see them and they are watching over her. I know because I experienced the same thing a few short years ago. A very powerful and touching time in my life and in yours too, I’m sure. I so enjoy your insight into real life situations and what really counts…
– Mark J.
My thoughts are with you as you make this journey with your mother, as she is nearing the end of her life. It is such a blessing that she is surrounded with those who love her. I feel this is such a privileged journey, as I too am making this pilgrimage with my husband nearing his end with cancer.
We are blessed, too, as we are at peace and surrounded with the love of friends and family.
You have written on Valentine’s Day. A very special thing happened. My dear husband was taken out with four of his friends for coffee. On the way home he asked if they could take home to a bookshop to buy me a Valentine Card. He is very weak so they helped him into the shop with the help of his walker. When he gave it to me on the day, I was overcome with tears. It would have cost him so much in energy. We have found a deeper love than we ever thought possible.
– Jan M.
I was just moved by Bill’s story about his mother. I lost my sister last year from COPD, and at the end she was also gasping for air. It is so distressing to see your loved one in this condition. My heart goes out to Bill and his family, and even though it sounds heartless, a speedy and peaceful end to his mother’s suffering. Also, saw his daughter on Scorpion… good performance even though short.
– Marjorie P.
Sorry about your mom, Bill. Went through that. Don’t bet on the entities not being there. In fact, you have a special opportunity to find out more. I wish I could’ve asked my dad and mom on who they saw waiting for them.
Ask her to name them and describe them, if she can. I’m guessing there are some relatives from way back, which have been watching over her since she was a child. Maybe even a favorite pet or two. It should provide a great deal of comfort knowing that they are waiting to accompany her to the other side.
– Marcus N.
Jeff Clark is a master options trader. And his latest training event showed thousands of your fellow Diary readers how they can double their money eight times per year… Jeff actually did it 15 times in 2008.
His special presentation – “How to Profit Before and After the Coming Downturn” – is only available for a few more days. So don’t miss your chance to hear Jeff explain the secret to his highly successful trading strategy.