PARIS – We promised to end the week with a bang!
You’ll recall that Fed policy always consists of the same three mistakes… 1) Keeping interest rates too low for too long, resulting in too much debt; 2) Raising interest rates to try to gently deflate the debt bubble; and 3) Cutting rates in a panic when stocks fall and the economy goes into recession.
Well, here comes the Big Bang: Mistake #4 – rarely seen, but always regretted.
Mistake #4 is what the feds do when their backs are to the wall… when they’ve run out of Mistakes 1 through 3.
It’s a typical political trade-off. The future is sacrificed for the present. And the welfare of the public is tossed aside to buy money, power, and influence for the elite.
Every debt expansion ends in a debt contraction. Stocks crash. Jobs are lost. The economy goes into reverse, correcting the mistakes of the previous boom.
Investors see their money entombed. Householders await foreclosures. The authorities scream: Apocalypse Now!
The more the feds falsify price signals in the boom, the more mistakes there are to correct. For example, this week, a report in The New York Times described the big mistake in the shale oil boom.
You’ll recall that it turned America from a big importer of oil to a major exporter… and revived much of the heartland with big fracking projects in woebegone regions of Texas and North Dakota.
The shale oil boom was even credited with having scuttled the oil market, which dropped from a high of around $130 a barrel in mid-2008 to under $30 in late 2016, thanks to so much new supply.
But guess what? The whole boom was fake. It didn’t add to wealth; it subtracted from it. Accumulated losses over the last five years tote to more than $200 billion, with $36 billion lost in the Bakken shale fields in North Dakota alone.
Had credit been priced properly, it never would have happened. From The New York Times:
The 60 biggest exploration and production firms are not generating enough cash from their operations to cover their operating and capital expenses. In aggregate, from mid-2012 to mid-2017, they had negative free cash flow of $9 billion per quarter.
These companies have survived because, despite the skeptics, plenty of people on Wall Street are willing to keep feeding them capital and taking their fees. From 2001 to 2012, Chesapeake Energy, a pioneering fracking firm, sold $16.4 billion of stock and $15.5 billion of debt, and paid Wall Street more than $1.1 billion in fees, according to Thomson Reuters Deals Intelligence. That’s what was public. In less obvious ways, Chesapeake raised at least another $30 billion by selling assets and doing Enron-esque deals in which the company got what were, in effect, loans repaid with future sales of natural gas.
But Chesapeake bled cash. From 2002 to the end of 2012, Chesapeake never managed to report positive free cash flow, before asset sales.
Of course, the same thing could be said of the trillion-dollar companies, Amazon and Apple, whose market capitalizations are largely the result of cheap credit.
And it could be said of the whole tech sector – with its outrageous inputs of capital into companies that have never made a dime.
Or it could be said of emerging markets, which have managed to suck up the loose change spilling out of the financial industry. They promised slightly higher yields, and now, they owe far more than they can pay.
It could also be said of Silicon Valley carmaker Tesla, which now has an estimated $10.5 billion in debt – despite never having made a profit…
Or of the entire stock market, where trillions of dollars in cheap capital have produced very little real return.
“When the wind blows hard enough,” say the old-timers, “even turkeys fly.”
The wind never blew as hard as it did from 2009 to 2018. And overhead now are so many plump, money-losing birds that we suggest you take cover.
But that’s just the beginning… As the turkeys fall to Earth, the Fed’s reputation is called into doubt. Its manhood is questioned. Congress and the Trump administration, too, are roused to action!
The feds will make the rational choice (for them). They will go for broke.
That is, they will do things that cause you to go broke… while the insiders continue to get rich, following the tried-and-true remedy of Mistake #4 – the refuge of scoundrels and the last resort of jackasses from Zimbabwe to Venezuela.
The essence of Mistake #4 is “printing” money – lots of it – to cover soaring deficits, prop up failing enterprises, reflate markets, rescue sinking households, save the bankers, reward the cronies, and keep the zombies from running wild in the streets.
All this money-printing will spark inflation… which will soon be blazing-hot.
The Fed, of course, is duty-bound to keep prices “stable.” But in the end-of-the-world hysteria, we predict the Fed will “print”… and worry about price stability later.
“When someone is trapped in a house fire… you try to get them out,” the feds will say. “We’ll worry about the fire insurance later.”
A breathtaking infrastructure boondoggle. A “space force” so far out that it is quickly lost somewhere beyond Mars.
New trade wars to protect U.S. industries from fair competition. A “guaranteed income” for everyone.
Bailouts… Subsidies… Grants… Contracts… Spend, spend, spend. “It’s good for the economy!”
Oh… and new controls on banking and cash… and perhaps gold and even bitcoin… closing the doors to prevent people from escaping the burning building.
Our advice: Run, don’t walk, to the nearest exit now.
Editor’s Note: While our editor is squarely focused on America’s looming financial reckoning day, he still finds time to take in the scenery. Today, Bill shares a picture from his stroll in Paris…
Les Invalides under cloudy skies
Editor’s Note: Nick Giambruno is Casey Research’s globetrotting analyst who specializes in identifying crisis investing opportunities. Today, he shows how Trump’s trade war could benefit resource investors… and kickstart domestic production of one unloved commodity.
By Nick Giambruno, Editor, Crisis Investing
I believe we’re about to see the price of one key commodity skyrocket…
In July, the U.S. Department of Commerce launched an investigation into the effects of uranium imports on U.S. national security under Section 232 of the Trade Expansion Act of 1962.
You might remember Trump used this same process to impose tariffs on steel and aluminum imports.
This proposal would require the U.S. government to buy all its uranium from domestic sources. It would also limit uranium imports to 75% of the U.S.’ needs, with the other 25% required to come from domestic miners.
Here’s why this move is crucial…
Nuclear energy is absolutely essential to U.S. energy security. It powers one in every five houses in the U.S.
Uranium is also used to power the U.S. military’s submarines and aircraft carriers. And it is, of course, the key ingredient needed to service and upgrade its nuclear weapons arsenal.
Despite this, domestic uranium production in the U.S. has collapsed.
In 1980, the U.S. produced most of the uranium it used domestically. But as we can see in the chart below, U.S. uranium production has plummeted 97% since then:
And here’s the kicker…
Last year, the U.S imported around 98% of its uranium needs. Nearly half of those imports came from Russia and its allies, or other unstable countries like Niger and Namibia.
In other words, the U.S. is dependent on the kindness of foreigners – many of whom are adversarial – to keep the lights on and the U.S. military functioning.
President Trump recognizes the situation.
Securing domestic uranium supplies is critical for the U.S. to achieve energy independence. And it fits right in with Trump’s “America First” platform.
Trump’s made it clear in the past that he supports uranium. He is on record as saying, “I’m in favor of nuclear energy, very strongly in favor of nuclear energy.”
And this isn’t just talk. The Trump administration seems to be making moves to increase U.S. domestic uranium production.
Now, a lot of people think tariffs and trade wars are bad news for commodities. But here’s why that’s not necessarily the case…
Mining legend Robert Friedland said it best at the Sprott Natural Resource Symposium in Vancouver that I presented at recently.
Friedland pointed out that – contrary to conventional wisdom – the current environment of trade wars and protectionism is actually good for commodities.
That’s because in such an environment, countries will scramble to secure their supplies… driving prices up. And I think Friedland’s correct.
Uranium is a strategic commodity of the highest order. And the U.S. government is clearly making moves to secure its supply.
Trump has already shown that he is not afraid to use tariffs or implement policies to try to protect U.S. industries. So I have little doubt that he’ll implement policies favorable to the U.S. uranium industry in the near future.
Let me say, I am not a fan of any sort of government meddling in the economy. But we might as well profit from the situation.
As legendary speculator Doug Casey often says, a successful speculator capitalizes on politically caused distortions in the market.
If and when the U.S. implements policies favorable to domestic uranium producers in the months ahead, it will send their share prices soaring.
– Nick Giambruno
P.S. One last thing before I go. I’ve uncovered another classic speculation similar to the one we’re seeing in uranium. The market for cannabis has been hammered down for decades, thanks to prohibitive government policies. But now, that’s all changing…
Legal cannabis will go on sale in Canada next month. Pot is now legal in some form in more than 30 U.S. states. And this trend is not backing up.
I’ve already given my readers the chance to see gains of 123%, 164%, and even 631% with a few best-of-breed marijuana companies. But these are still early days. To learn about the three marijuana companies I’m recommending right now, go right here.
U.S. Companies’ Last Push to Stop Tariffs
President Trump recently announced plans to impose tariffs on more than $200 billion worth of imported Chinese goods. For American companies that rely on foreign imports, this is bad news. To stop it, they’re trying one last-ditch effort…
Where the Millionaires Live
America has plenty of millionaires; 7.1 million, to be precise. That gives the U.S. the highest total population of millionaires in the entire world. Here’s where America’s millionaires call home.
How Trump Takes on Big Tech
Last week, President Trump accused Silicon Valley giant Google of “rigging” search results to stifle conservative-leaning viewpoints. Google denies the claim. But now, Big Tech is squarely in the crosshairs of the Trump administration. Here’s how the showdown might shake out…
In the mailbag, readers consider what’s to be done with America’s mountain of debt…
Over 85% of student loans are being repaid. Over 92% of consumers are paying their creditors. The great majority of corporate bonds will be refinanced at very low rates. Remember, interest rates may be going up slightly, but they are still at historic lows! The government debt will take care of itself if the economy continues to be the #1 in the world. All the rich, outside money will continue to come to the U.S.
– Kenny G.
I hate to burst your bubble, but the debt crisis started way before Bush or Obama were even old enough to toddle. The debt crisis started back in the 1960s under Johnson and his Great Society. In fact, under Obama, the deficit actually decreased by streamlining government and going paperless. Obama computerized everything. Trump is not fit to be president.
To offset the coming collapse, Bill has prepared me. I now realize that the Fed will be unable to drop the already low interest rates to much effect. But I am expecting it to print money to buoy the stock market. I hope so. Lots of hurt will occur if it doesn’t.
– Jim R.
Meanwhile, conversation turns to the White House “traitor“…
I don’t know whether you were being serious when you referred to Trump’s followers as an “army of fed-up patriots,” but nothing could be further from the truth. Trump’s redcaps are not patriots. Their loyalty is to Donald Trump, not the United States of America. They don’t give a damn about America! If they did, they would not support Trump!
Given the revelations leaked from Bob Woodward’s upcoming book, and the editorial by an anonymous senior official in the Trump administration that appeared in today’s New York Times, it should be obvious to anyone with even half a brain that Donald Trump is not fit to be president. He is an even greater threat to American democracy than the insane economic situation we find ourselves in. Trump is liable to end America before the fast-approaching financial meltdown has the chance to.
– Dale A.
President Trump is not incompetent. The incompetent ones are all of you who say that he is. I don’t see any of you being as smart as Trump is. He doesn’t even need any money from our government. All of you congressmen sure take that money. To all no-Trumpers: Do you have a lot of businesses and all the money you could use? No, I don’t think so. Get real.
– Doris A.
Anyone who believes what they read in the lamestream media is a fool and a sucker. It’s all propaganda, and a wiser person would believe the exact opposite.
As Bill wrote yesterday, he’s headed to Bermuda for an investment summit in the weeks ahead. And he asks you to join him…
And it’s not just Bill. Some of your favorite editors from Bill’s network – including Jeff Brown, Teeka Tiwari, and Dan Denning – will also be there. There’s still time to save a seat. Details here.