BALTIMORE – Yesterday, the Dow punched up above 19,000 – a new all-time record.

And on Monday, the Dow, the S&P 500, the Nasdaq, and the small-cap Russell 2000 each hit new all-time highs.

The last time that happened was on the last day of December 1999.

Just a few months later, the dot-com bubble burst and the tech-heavy Nasdaq lost 80% of its value.

And the U.S. stock market, overall, lost about 50%.

Free Money!

But investors are bullish. They believe President-elect Trump will be good for stocks.

He is supposed to arrive in Washington for his inauguration and march directly over to the Capitol to demand a tax cut.

This will return over $6 trillion to the private sector over the next 10 years… not to mention a proposed $1 trillion splurge on “infrastructure.”

As Trump’s chief adviser (and former Goldman alum), Stephen Bannon, explained to Michael Wolff of The Hollywood Reporter last week:

“Like [Andrew] Jackson’s populism, we’re going to build an entirely new political movement,” he says. “It’s everything related to jobs. The conservatives are going to go crazy. I’m the guy pushing a trillion-dollar infrastructure plan. With negative interest rates throughout the world, it’s the greatest opportunity to rebuild everything. Shipyards, iron works, get them all jacked up. We’re just going to throw it up against the wall and see if it sticks.”


Everybody’s talking about the feds’ opportunity to “invest” free money.  

It makes us nervous; we know how hard it is to get a good return on investment – especially when you don’t know what you’re doing.

The government pays just over 2% on 10-year loans. If inflation over the next decade is anywhere near its long-term average, the real cost of funds is roughly zero.  

The money, say the Big Spenders in Washington, will be free. 

All Aboard!

In the pages of the Financial Times is another voice for investing money that doesn’t exist.

Here’s Fed Vice Chairman Stanley Fischer speaking to the Council on Foreign Relations think tank:

“Macroeconomic policy does not have to be confined to monetary policy,” said Mr. Fischer…

“Certain fiscal policies, particularly those that increase productivity, can increase the potential of the economy,” he said.

This is a train that’s going to sell out fast. Everyone is going to want to board. Free money. Jobs. Inflation. Infrastructure.

What’s not to like? Who will not want to be a passenger on this express train to Fantasyland?

Already on board, near the head of the train, is our friend Richard Duncan at Macro Watch.

Richard, a specialist in credit analysis who has worked with the World Bank, shares our view: The world economy is a giant bubble waiting to pop.

But his prescription is different. We would happily get out a pin and give the bubble a prick.

Not that we like to see innocent people suffer. But we hate to see guilty people not suffer.

Richard, on the other hand, is a kind-hearted soul, an optimist with a warm and uplifting view of human nature. He can’t bear thinking about the widows and orphans stuck in “another Great Depression,” which he believes would result if the credit bubble bursts.

All it would take is a big enough increase in interest rates. With so much debt in the world, he says, higher rates would be catastrophic.

How to avoid it? Richard:

Very large-scale government investment in the industries and technologies of the future will lift America’s poor out of poverty. It will save the middle class. And it will make the most prosperous segments of our society wealthy – and healthy – beyond their wildest dreams.

In an open video-letter to Donald Trump, he proposes that the feds should identify 10,000 of America’s “most promising entrepreneurs.”

They should all have good ideas for the future – biotech, nanotech, green tech, whatever – but it should have a “tech” at the end. Then the feds should invest in their businesses, forming public-private partnerships.  

Hell Train

Our cynical heart stops for a second. All that money up for grabs. All those cost-plus contracts!

Architects’ phones must be ringing already; insiders are planning new wings for their Aspen vacation pads.

These are government “investments” – no need to ever satisfy a customer or ever show a profit.

And we’re talking 10 times more money than the $100 billion in Corn Belt giveaways… or the penny-candy subsidies to sugar tycoons, the Fanjul brothers (who, taking no chances, put on Miami campaign fundraisers for both Clinton and Trump).

But Richard is already in the observation car… enjoying the sun on his face, dreaming.

“Imagine what that would do,” he suggests, adding helpfully, “It would really Make America Great Again.”

Our imagination is not up to the challenge. We close our eyes. We scrunch up our face. We just can’t do it. We can’t imagine a group of hacks, has-beens, and bureaucratic chair warmers capable of identifying the “industries of the future.”

No one else has been able to foresee the future. How could they?

Venture capitalists, even when their own money is at stake, are notoriously bad at backing successful futuristic enterprises.

The feds, “investing” other people’s money, are bound to bet on the wrong ones.

But wait… Our imagination has finally rebooted.

And what’s this? 

No train to the future? What we see is a runaway locomotive. Incompetence at the throttle, flimflam stoking the engine, and impossible, pie-in-the-sky hocus-pocus putting on a show for the passengers.

A hellish train, in other words… loaded with trillions of dollars of looted resources – misallocated, stolen, and frittered away.




Further Reading: In the latest issue of The Bill Bonner Letter – published this past Wednesday – Bill considers what a Trump administration will mean for the economy and your investments. Unfortunately for us, a big part of his conclusion is that, thanks to the Deep State, what is going to happen has very little to do with who sits in the Oval Office. Paid subscribers can catch up here.

Market Insight

By Porter Stansberry, Founder, Stansberry Research

What has happened in the corporate bond markets is unsustainable. It should be obvious to everyone that negative interest rates are the opposite of capitalism. It’s capitalism inverted.

And then, even if you don’t understand that, you’ve got to realize there’s no way the banks can afford to pay you when you’re borrowing their money. It simply won’t work.

That gets us into this idea of timing. I want to get into what we’ve done, anticipating what we know has to happen going forward.

My team buys an enormous amount of data on corporate credits. We buy a full credit profile on 40,000 different corporate-debt securities every month. We have a team of two CPAs and a lawyer who go through all of these data. And we produce our own credit ratings on 3,000–4,000 issues every month.

Now you say, "What’s the difference?"

Well, we are only rating stuff that’s tradeable. So the volume of what’s being traded determines our actual universe.

We take whatever is being traded, whatever you can actually buy – generally bonds that have more than $250 million of volume outstanding and are tradable in the U.S. – and we rate all of those. Then we compare our internal ratings with what the major credit-rating agencies say these bonds are worth and also with their credit worthiness.

Most of the time, as it won’t surprise you, we agree. There aren’t a lot of big discrepancies. But between 3% and 5% of the time, we disagree. Sometimes, our disagreements are big.

Devon Energy, an oil company, is a great example of where we completely disagree. We know about the quality of Devon’s asset base. They own, unfortunately, a lot of oil sands.

We suspect that their cash flows, which have been very poor for a long time, are not going to suddenly improve. S&P and Moody’s feel differently.

But we think that’s a great opportunity. It’s a place where we believe credit will have to be downgraded.

When that credit is downgraded, everything goes wrong for a company. It goes from "BBB," which is investment grade, down to what’s called "junk" bonds, or high-yield bonds. The cost to roll over their debts goes way up. And it also leads everybody to re-examine the quality of their collateral… which means they may not be able to roll their debts forward.

That’s really the situation we’re trying to find. Because when a corporation like that gets rerated, the value of its equity, which sits underneath all of those debts, can get completely wiped out. If a company defaults on one bond, the value of the equity typically goes to zero.

Editor’s Note: It only took 10% of mortgages defaulting to trigger the 2008/2009 financial crisis. Today, we face a much, much bigger problem in a much larger market. Many investors will be wiped out. But you don’t have to be a victim. Learn about this once-in-a-lifetime opportunity to make 10–20 times gains right here.

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As Bill warned yesterday, if Trump’s spending plans make their way through Congress, Washington’s "debt bomb" will explode. And it’s gotten Diary readers thinking…

Just take the Department of Education. It has done zero good since inception. You could make an excellent case that they have only hurt education of our young, especially the grave force of liberalism on students by mostly left-winged, nutcase educators and managers.

Getting rid of intrusive regulations can transmit to getting rid of the thousands of worthless employees who spend all day dreaming them up!

Then there’s the IRS to consider. Changing the 50,000 pages of tax code by simplifying our taxes could end 75% of the mostly left-winged biased auditors and 100% of management.

– Jim P.

I don’t know if Trump can do much or not. But he can’t mess it up any worse than these idiot attorneys have. So, I guess we will see what happens.

As a small-business person, I am in touch with contractors from east to west and north to south every day. And the economy is in super bad shape. People are just treading water. They are not making a profit to replace needed equipment. This explains the bad condition that Caterpillar is in today.

– Doug F.

I enjoyed your letter today about Trump. Although it may be true that Trump is a very good businessman, negotiator, and showman, it is also true that, far more than anything else, he is an extreme, unethical, hateful bully who had no business receiving anyone’s vote.

– James N.

In a letter I sent to the Trump campaign, I gave them 19 total "distinguished names" in five categories. I gave them Bill’s name in the category of "honest writers and thinkers."

I doubt if my letter even reached those directing the campaign, but at least I tried. Bill speaking the truth is a help to those of us who listen. He would be a help to the nation if Mr. Trump called on him for advice.

– Carl W.