GUALFIN, ARGENTINA – Oh, Dear Reader… last week’s news from the Fed reminded us of those home videos where someone gets hurt.

Fun to watch. But painful if you’re in the picture.

And now, front and center, is the U.S. financial system. Have a seat. Get a beer. How often do we get to see the world’s leading economy blow its brains out?

Real Catastrophe

Yes, the pieces are starting to fall into place. The puzzle is coming together, faster than we expected.

We thought the Fed would at least have the decency to wait for a crisis before it caved in to the Deep State. And we were surprised, too, how fast Mr. Trump has moved to pack the Fed with political hacks… who are sure to pull the trigger when the pistol is offered to them.

But these moves… such as they are… help us to see more clearly how the feds made a mess of the economy… and how Congress, AOC, Trump, the Fed, and the whole company of Deep State heaven will turn it into a real catastrophe.

This is a big subject… with many moving parts… so let’s go slowly. Step by step… piece by piece.

Clownish Move

Last week, we were looking at who pays unpayable federal debt. As we studied the subject, a whirlwind of staggering news blew up.

First up came Jerome Powell, chief of the Fed, with an extraordinary announcement. The Fed would not be normalizing interest rates anytime soon, he said.

And as for that $3.6 trillion the Fed conjured up out of thin air… well, get used to it. The Fed would not try to normalize that, either. It’s here to stay…

From an economic point of view, the move was clownish. No serious theory supports it. But if you are conniving to protect Wall Street and Washington… and ready to turn the Fed into another gear in the Deep State’s political machinery… well, why not?

Then, in the breaking wind of the Fed’s foul announcement, long-term interest rates fainted and tumbled over. Mortgage rates fell. All of a sudden, financial commentators saw an inverted yield curve and a recession coming.

When it comes, now or later, it will do to the Trump Team’s fantasy growth projections approximately what the “bomb cyclone” did to the Midwest. The 3% growth forecast will soon be underwater.

And it will blow the roofs off stock prices, too. That was the funny thing. The Fed was so eager to avoid losses on Wall Street, it seems to have caused them. The breeze picked up on Friday morning; by the close of trading, the Dow was down a cool 460 points.

Usual Suspect

We were still holding onto our hat when another ill-wind blew from the Bloomberg pages. Word came that, last month, the U.S. posted the biggest monthly budget deficit ever.

More than a year after the Trump tax cut went into effect… promising to “pay for itself” in extra growth… the feds lost $234 billion last month – a new record.

In a nutshell, where it belongs, the feds are going to run trillion-dollar deficits, from here to eternity… and the Fed is going to “pay” for them with phony money.

But someone, sometime, somewhere, somehow is going to have to pay, for real. And the bill will be huge. We estimate the feds’ debt could hit $40 trillion by 2030.

Win-Lose System

We’ve been looking at how it works here in Argentina. Inflation is said to be running as high as 100% (Steve Hanke’s estimate). And GDP is set to fall some 6% this year. It is an economic and financial catastrophe.

Who pays? Not the rich… who are still enjoying the good life in Buenos Aires. And not the poor – they have nothing to lose. And not the insiders, chislers, and cronies who live off the government; the feds are still spending money.

Whom does that leave?

Retirees, consumers, taxpayers, shopkeepers – and all the people who make the win-win economy work. In the end, government debt is always essentially a transfer from the Main Street win-win economy to the feds’ win-lose system.

Even when the feds promise to index wages and benefits for inflation… there is always a lag and phony accounting. The result is just what you’d expect – the typical working stiff pays.

But now, it is a new week. And tomorrow, we look more at some of the trash the storm has picked up.

In particular, President Trump threw his candy wrapper out the window in the form of one – Stephen Moore.

POTUS is nominating Moore – a campaign advisor – to fill an empty seat on the Fed’s board. Typically, Fed governors are academic economists or PhD non-entities. Moore is a political hack.

What’s up? Stay tuned…

Regards,

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Bill

Editor’s Note: Up at Gualfin, it’s not all cattle-wrangling and dot-connecting. Recently, Bill picked up the guitar and played for a group of dinner guests. Hear it for yourself right here.

MARKET INSIGHT: BANKS LEAD THE WAY LOWER

By Joe Withrow, Head of Research, Bonner & Partners

All year, we have been warning that the snapback rally in stocks since December 24 would not last.

And last week gave us another red flag…

Bank stocks are in free fall…

Today’s chart maps the Dow Jones U.S. Banks Index from the start of 2018 through today. This index tracks 65 U.S. companies in banking and financial services.

Chart

As you can see, the Dow Jones U.S. Banks Index plunged 9% last week. For comparison, the S&P 500 only fell 1% during that time.

This is important to note because financial stocks comprise 13% of the S&P 500… And they tend to lead the market. That’s because banks are a key cog in the flow of money. And the flow of money is crucial to the economy.

If you recall, the S&P 500 peaked on September 20 of last year. Then it fell about 20% through Christmas Eve… with more than half of those losses coming after December 13.

But this loss was preceded by a fall in banking stocks.

The Dow Jones U.S. Banks Index peaked on August 8 of last year – more than a month before the S&P 500 peaked. It went on to fall 27% through Christmas Eve…

In other words, bank stocks peaked before the broader market. And they led the S&P 500 lower throughout its fall.

That’s why last week’s action in the banking sector is an ominous sign. If this trend continues, the S&P 500 is likely headed lower in the coming weeks.

Investors be warned…

Joe Withrow

P.S. We’re not the only ones who see trouble ahead for stocks. Legendary speculator Doug Casey believes that the “everything bubble” must pop and that stocks will plunge. And then, things get bad…

Doug is releasing five predictions for 2019, and he’s sharing five “moonshot” speculations that could deliver 1,000%, this Wednesday at 8 p.m. ET. But fair warning, Doug’s a man who speaks his mind, no matter whom it might offend. See for yourself here.

FEATURED READS

Why the Housing Market Is Flashing Yellow
If the best gauge of U.S. economic health is in fact the housing market, we might be in trouble. A recent government report shows new home sales are 4.1% below where they were this time last year. And with household debt reaching an all-time high and interest rates rising the last three years, it’s looking like a housing slump may continue, full speed ahead…

The Latest Data Breach: 2.5 Million Disaster Survivors
The Federal Emergency Management Agency (FEMA) is the latest organization caught up in what it’s calling a “major privacy incident.” Banking information and the addresses of over 2 million disaster survivors were released to an unnamed “contractor.” After surviving California wildfires and major hurricanes, these survivors now have another potential battle to face… identity theft and fraud.

Why Modern Monetary Theory Will Destroy Money…
Our editor has referred to Modern Monetary Theory (MMT) as “a substitute for common sense.” Doug Casey takes the MMT conversation a step further… He thinks this could all lead to the U.S. becoming a giant welfare and police state… and lead the American public to ultimately get what it deserves…

MAILBAG

Today, a mixed mailbag from readers: The Doom Indexinflation hitting Starbucks… and why you can’t trust banks…

The Fed did as Bill Bonner predicted, and not only froze rates for the foreseeable future, but stopped working down the phony-money express. When will the rate cuts come? I guess year 2020. I still don’t think the economy will go into recession or the stock markets will dive in President Trump’s first term, as Bill and other heavy hitters seem to think… I believe the world’s financial situation looks scary, but won’t collapse anytime soon. I am worried it will happen during Trump’s second term by globalist central banker design.

But, if Mr. Bonner’s Doom Index does go to 8 or especially 9 this year or next, then he is right and I am wrong. But I doubt it will, as long as the world’s central bankers can juice the economy for a few more years. I have always found Bill and his folks on the subscriber side of his empire to be extremely honest, honorable people. So, we will all watch the quarterly Doom Index and see someday, when Doom actually happens throughout the world. Until then, I think Bill should emphasize his very entertaining travelogues and human nature stories, and quit repeating his same boring doom-and-gloom stats every day. (Maybe once or twice a week.)

– Frank W.

On the topic of inflation, and a couple generations of folks that haven’t really seen any, here are two recent, rather invisible signs… But the lower income folks probably won’t notice… only us entitled ones. My Starwood hotel credit card used to rack up points to use for free nights at hotels. It just merged with Marriott, and now, the point system is different because of the way Marriott does it. We effectively lost 33% earning power through the merger. Too boring to explain how, but effectively, my hotels cost more.

Today, my wife told me that instead of only needing 125 Starbucks points to get a free coffee, now I need 150! What’s next? Is Netflix going to rob me of another 2 bucks a month? Oh, wait… I just got that message last night. Stop the madness!

– Rick V.

I do not want free socialist, free medical care for everyone. I want the same medical care at the same cost that our legislators enjoy for everyone.

– Bernard B.

Children think you flip a switch for electricity or turn a faucet for water. The supply appears to be unlimited. Some of them retain this belief well into adulthood, especially if they aren’t the ones paying for it. On the other hand, some of my (now gone) elders didn’t trust banks. Why? Because they can fail. They also kept leftover food, no matter how little.

Their children and grandchildren – my parents’ generation – were suspicious of ATMs when they were introduced. They were suspicious, a decade or two later, of giving their credit card numbers to an internet website. If it weren’t for Facebook’s help in keeping up with the grandchildren, they might not have a computer or smartphone, today. But they trusted banks, again.

The suspicion and skepticism of trust betrayed is what will kill all cryptocurrencies. If ATMs worked when you were born, you grew up thinking that ATMs work like the faucet or the light switch. You don’t understand electricity, you use it. The ATM dispenses currency. So, when the thing you trust is true betrays you, as is inevitable with cryptocurrencies and fiat, most of those people will never forget it, and never trust them again.

The siren-call of an “idea” of taking currency out of the hands of government is only appealing to people who embrace new technology because they understand it… Unbacked currencies always fail. You can’t back a crypto with a fiat and expect anything else.

– Sandra K.

And a dear reader recounts meeting our editor in Nicaragua…

A few years ago, my wife and I were rewarded by spending an evening with Bill and his family at their home in Rancho Santana, Nicaragua. If you ever can see Bill Bonner up close and personal – take it. Bill’s fight to make a marginal Andes ranch into a thriving unit reminds me of my youth. I grew up on a dryland wheat farm, located on a high alpine desert in Western Colorado. Our principal source of moisture was only the winter snow, as any summer rains were light and few. Consequently, our crop yields were never comparable to the Midwest.

When I graduated from high school, all I wanted was to see those dusty wheat fields in my rearview mirror. But after college, and living the corporate life in Colombia, Mexico, and New York for 15 years, the only place I wanted to be was back on the old home farm. I’m now 81, and thank God my mom and dad knew the important values of life. Too bad today’s Generation Xers and millennials never had the opportunity to grow up on a Western Colorado wheat farm. Their outlook on life and their future would be different and so much better.

– Harold S.

IN CASE YOU MISSED IT…

This Wednesday, at 8 p.m. ET, legendary speculator Doug Casey is sitting down for a candid conversation about the direction of America in 2019 and beyond…

But be warned, Doug isn’t known for holding back. And this world premiere event of Totally Incorrect: LIVE is too controversial to detail here. If you’re easily offended, it’s not for you.

But if you’re one of the few people who still believe that sometimes the hard truths have to be said, no matter whom it offends, then you cannot miss this event. Reserve your spot while there’s still time.

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