BALTIMORE – Bitcoin rose another $1,000 in the last 24 hours. Whoopee!
What’s going on? Yesterday, we described an Extremely Simple Pattern (ESP).
You put “money” into an economy and prices float up. Take it away, and prices fall.
Prices float on a sea of liquidity. Which prices rise depends on where the money flows.
Open the dikes into the consumer economy, as Lyndon Johnson did with his Vietnam War and Great Society programs, and consumer prices tend to rise. Direct the money to Wall Street – by buying bonds from big banks and other financial institutions via QE, as Greenspan, Bernanke, and Yellen have done – and it tends to drive up asset prices.
Either way, there is no reason to believe that just adding “money” – dollars, euro, or bitcoin – adds to real wealth. Real wealth must be earned… by someone.
It can’t be printed.
Nobody complains when asset prices are rising… at least not the people who own the assets. But here’s another important ESP: When fake money causes Wall Street to go up, Main Street goes down… and vice versa.
Real wealth is a win-win for everyone. But fake money is win-lose; you only gain wealth by taking it from someone else.
The consumer price inflation of the ’60s and ’70s caused a selloff in stocks and bonds, reaching a bottom in 1982. Main Street “won.” Wall Street “lost.”
Now, the situation has reversed. The money flows to Wall Street… we’re near a top for stocks and bonds… and Main Street sinks. The “One Percent” build their palaces in Aspen, Colorado, and Greenwich, Connecticut… while in the mill towns of Ohio and the hill towns of Missouri, people get poorer.
We have it on the authority of The Wall Street Journal:
Dollar General is expanding because rural America is struggling. With its convenient locations for frugal shoppers, it has become one of the most profitable retailers in the U.S. and a lifeline for lower-income customers bypassed by other major chains. […]
The more the rural U.S. struggles, company officials said, the more places Dollar General has found to prosper. “The economy is continuing to create more of our core customer,” Chief Executive Todd Vasos said in an interview at the company’s Goodlettsville, Tennessee, headquarters.
Well, God bless the bubble economy! It’s creating more customers for low-end retail stores.
Yes, dear reader, the world is full of ESPs:
The feds promise “huge tax cuts” for the middle class. But the Deep State controls the process; its cronies get most of the money.
The GOP claimed to be able to “pay for” its tax cuts by pretending they were temporary. “Sunset” limits and “trigger” devices are supposed to kick in in 2025 to reduce federal borrowing; only the corporate tax cut is meant to endure.
But if the ESP of the last few decades holds, the tax cuts will turn out to be permanent… spending will go up… and the deficits will be larger than anticipated.
Already, the Committee for a Responsible Federal Budget says federal deficits will increase by $1 trillion as soon as 2019. And if the sun never sets on the “temporary” cuts, the federal debt will explode.
This ESP is not something unique to the USA. Here’s DollarCollapse.com:
A recurring pattern of the past few decades involves governments promising to limit their borrowing, only to discover that hardly anyone cares. So target dates slip, bonds are issued, and the debts keep rising.
This time around, the timing is especially notable, since eight years of global growth ought to be producing tax revenues sufficient to at least moderate the tide of red ink. But apparently not.
Japan already has government debt equal to about 250% of GDP. But it’s still borrowing.
Britain doesn’t expect another balanced budget until 2031.
China’s problem isn’t central government debt. Instead, its debt is added by companies in collusion with local governments.
That debt is growing at a staggering pace, up 21 percentage points between 2014 and 2016.
And much of it – about 13%, according to the IMF – was lent to “zombie” companies that lose money and have no hope of repaying their debts.
What has all this borrowing wrought? The biggest asset boom in history, with the total value of stocks worldwide at almost $100 trillion. And bitcoin… this morning… at $12,800.
And here’s a final ESP: Borrow too much… then go broke.
By Doug Casey, Founder, Casey Research
Editor’s Note: Regular readers know Bill’s longtime friend Doug Casey as a legendary speculator with a track record of finding huge gains in the commodities market. Today, he shares one overlooked asset poised to soar.
In October 1998, I wrote a very long and thorough article for my newsletter on uranium and nuclear power, where I recommended several uranium stocks that subsequently – about two years later – all exploded upwards in value.
When the market wants into gold stocks, it’s like trying to force the contents of the Hoover Dam through a garden hose. In the case of uranium stocks, it’s more like a soda straw. It’s a very small market.
These wild imbalances in supply and demand, accompanied by equally wild swings in price, often surprise people who aren’t familiar with the resource business. But it is the very nature of the beast. And one of the reasons speculating in it can be so profitable – if your timing is good.
It’s really only possible to raise money to discover deposits and build mines when prices are high, because that’s when the typical investor is willing to finance companies and thinks he’ll make a killing. Of course, the industry takes advantage of that window, resulting in an immense amount of new capacity.
Meanwhile, the same high prices that encourage new production also start to discourage new consumption. Although that’s only marginally true with uranium, because the cost of fuel is trivial – no more than 5%, worst case, of overall costs. Which means by the time the new production hits the market, after a time lag of several years, both prices and physical demand have collapsed – as have the share prices of the surviving companies.
That is when professionals who understand the way these things work open up their checkbooks, because the resource business – oil, precious metals, grains, uranium, you name it – is as cyclical as the seasons of the year. It’s just that each commodity has its own peculiarities.
The uranium market, like that of most metals, is highly cyclical and very, very volatile. The time to buy, therefore, is when prices are low, which is exactly when most people are afraid to act.
Right now, uranium is very cheap again. It’s selling for under the cost of production once again. So I like uranium… a lot.
When commodities sell below production cost for long enough, the producers go bust and supplies drop. Then, prices rise and production eventually goes back up.
At the peak of the last uranium bull market, in 2007, there were about 300 uranium exploration companies. Now, there might be a dozen, mostly dormant.
Higher uranium prices will predictably switch investor sentiment from bearish to bullish. Then, as Wall Street belatedly reacquaints itself with uranium, companies will get value for assets which nobody could care less about today.
– Doug Casey
Editor’s Note: Doug has identified opportunities that went on to return 721%, 928%, and 2,154% – as well as many more that paid 10-to-1 or more. Next week, Doug is holding a free training master class to show readers how he spotted these trades. Reserve your spot here.
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Artificial intelligence is becoming standard in institutional investing. Giant money managers like Goldman Sachs are relying on it more and more. And now, one CEO says that machine learning could have a hand in 99% of investment management in the future.
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China’s property market is booming. Investors want to get in by any means necessary. And that’s leading to rampant mortgage fraud, posing a serious threat to Chinese banks.
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Cryptocurrencies have been on a run. Bitcoin is up 1,000% in 2017 alone. Are cryptocurrencies in a giant bubble? Or are they poised to rewrite money as we know it?
In the mailbag, readers recognize the real brains behind the man…
I usually like what you write, but now I find out that the distaff part of the team is smarter than you!
– Ezra S.
Not that there is anything wrong with your writing, but do you think you could persuade Elizabeth to pen one Diary per week? She is concise and to the point.
Like you, she is obviously very smart and well educated. She also has a firm handle on both reality and common sense.
It might be wise to try on any new ideas in front of her before you trot them out in public. She seems to be the lubricant that keeps the old machine from seizing up. Her response to the Clive Bell theory was excellent.
– Jack S.
For some time, I have been of the opinion that Bill’s greatest treasure is Elizabeth. I am sure that they both know this.
– Joseph B.
Thanks for this wonderful essay…
– John S.
But not all readers are so pleased…
I read this edition of your newsletter with dismay. I strongly object to you appearing to label all of us with disabilities as lazy or undeserving. I had severe polio at 9 months of age in 1946. I was totally paralyzed and in an iron lung for many months. I’ve had about 20 operations, never attended elementary school, and missed most of my junior year in high school. I went on to get a Ph.D. and a M.S., teaching at Rutgers University. Unfortunately, walking the long hospital hallways and teaching in large lecture halls resulted in me rapidly losing my voice and having terrible radiating pains down my legs at night.
Not everybody who is on disability wants to be on the dole. Please qualify your remarks in the future.
– Susan D.
If you have $75, you have all the capital you need to potentially become a cryptocurrency millionaire…
That’s the message from the Palm Beach Research Group. It may sound incredible. But their readers have seen gains as high as 3,002%, 5,052%, and even 31,127% with cryptos. And they tell us this market is just getting started. Read on here.