BALTIMORE – U.S. stocks bounced yesterday, with the Dow up 269 points.
Was that all there was? Is the “Brexit” scare over?
We don’t know…
But we’re going to take a pause today. Instead of trying to connect the new dots, we’re going to take a look at the old dots we’ve already strung together.
We’ve been connecting the dots every day (except weekends) for the last 17 years. And today, for the benefit of new readers, old dear readers, and our own benefit too… we step back.
What do we see?
As for Brexit – British voters’ decision to leave the European Union – it is simply a case of the common man mooning the elite.
It doesn’t matter whether he says “schedule” or “skedule,” he’s dropping his pants, fed up… even if he doesn’t exactly understand what he is fed up with.
Let us begin in the beginning; maybe we can help him out.
Markets do not set prices. They discover prices. The difference is critical. Prices change every minute the markets are open… with buyers and sellers always scrambling to find the right one.
Prices are signals. Capitalism is fundamentally a learning system, not a get-rich system. And prices – honest, freely-discovered prices – are vital information.
They direct investment, consumption, savings – everything. Fiddle with the prices – as the Fed now does with the most important price of all: the price of credit – and you cause distortions, corruptions, and breakdowns.
What is anything really worth when you don’t know what money is worth?
And prices are different from values.
Prices may change from day to day. Values change slowly. “Price is what you pay,” say the old timers, “but value is what you get.”
The distinction is important.
As courtroom witnesses, prices are easily suborned. They can be bribed, bullied, and bamboozled without much effort. They yield readily to passing fancies, news, PR, mob sentiments, fads, fashions… and Fed manipulation.
Prices can be fiddled, in other words. Values cannot. Values are reliable; they do not waiver… They do not crack under pressure. But they are deeper… and harder to discern.
The difference is roughly the same difference between quantity and quality.
Any fool can produce quantity… and any economist can count. But discerning quality – the real value of something – requires judgment, taste, and the discipline of a market.
That’s the trouble with modern economics, too: It is all counting. What really matters is quality. And economists wouldn’t know quality if it bit them on the derriere.
Here at the Diary, we look for value. In stocks. In everything.
And almost everywhere we look today, we don’t see it…
Take a Japanese government bond, for example.
You can buy one that matures in 10 years. For your trouble, you’ll get a yield of MINUS 0.24%.
That means, in “nominal” terms (not adjusted for inflation or deflation), the Japanese government (which is effectively bankrupt) positively, absolutely guarantees you will get back less money than you paid.
Where’s the value?
Or take the typical stock on the New York Stock Exchange. According to Yale economist Robert Shiller, it sells for 25 times last year’s reported earnings.
If you bought the whole company, you’d have to wait a quarter-century before earnings – if there still were any – repaid your investment.
Where’s the value in that?
And that’s before taxes. A Maryland or California resident could expect to wait twice as long – a half-century!
Or take politics. Do you see real value in Congress? In the candidates for president? In a system that pretends that “the people” call the shots, when they clearly don’t?
And then… there are public policies – the War on Poverty, the War on Drugs, the War on Terror, the wars in the Mideast.
The government has invested trillions of dollars in these programs.
But where’s the return? Where’s the value?
Another pause for detail…
The U.S. has plenty of oil and gas. It doesn’t need to spend $1 trillion a year (the entire cost of the U.S. “security” industry) to protect energy imports from the Mideast.
This year, the U.S. will import about 500 million barrels of oil from the Persian Gulf. At $40 a barrel, that’s only $20 billion worth of oil.
But James Burgess at OilPrice.com writes:
Roger Stern, a professor at the University of Tulsa National Energy Policy Institute, wrote a study in 2010 in which he estimated that the U.S. had spent $8 trillion on protecting oil cargoes in the Persian Gulf since 1976, when its military presence in the region was boosted following the first Arab oil embargo.
This is all despite the fact that only 10% of the oil passing through the straits is destined for the U.S.
Where’s the value?
And Stanford political scientist Francis Fukuyama writes:
During the run-up to the primary in New Hampshire – a state that is about as white and rural as any in the country – many Americans were likely surprised to learn that voters’ most important concern there was heroin addiction.
In fact, opioid and methamphetamine addiction have become as epidemic in rural white communities in states such as Indiana and Kentucky as crack was in the inner city a generation ago.
This increasingly bleak reality, however, scarcely registered with American elites – not least because over the same period, they themselves were doing quite well.
Isn’t this what the War on Drugs was supposed to prevent?
Where’s the value?
Trump supporters want to know.
How did the elites get so cut off? How did they get so rich while everyone else got so poor?
What happened 45 years ago that caused prices to rise… but values to fall?
By Mark Morgan Ford, Founder, Wealth Builders Club
You go to lunch with a colleague. The total is $26.
Do you pick it up? Do you hope he does? Or do you suggest you split it?
On the surface, this is a minor decision. But in truth, it is one of a million chances you have to become wealthier.
A cheapskate might look at it this way:
But I have a different view. Paying the tab might actually make you richer. Because the $13 you spend might give you a return of much more than $13.
Your generosity might signal to him that you are the kind of person he can trust. It might tell him you are someone who is willing to give first without demanding recompense. If he sees you in that light, a relationship might be seeded by this small investment on your part. A year later, he might recommend you for a promotion.
It depends on your assessment of his character.
If he impresses you as a person who believes – as you do – in reciprocity, you will know that the $13 is a wise investment. If, on the other hand, he shows he is a person who believes in exploiting others, the wise move might be to pay only your share of the bill and not develop the relationship any further.
In either case, you are richer.
In the first case, you are richer in a potentially lucrative business relationship. In the second case, you are richer in knowledge – knowledge about him that can help you avoid trouble or seize opportunity in the future.
I am making two points: First, almost every event in your life is an opportunity for you to become richer. And second, by seeing every situation as a wealth-building opportunity, you can take the actions that will gradually make you rich.
Train yourself to ask the following four questions…
If you make it a habit to approach every situation this way, it will soon become automatic. And before you know it, you will have seized hundreds of wealth-building opportunities… each one making you a littler richer.
Editor’s Note: Sometimes it can be difficult to recognize wealth-building opportunities when they come up. To help you learn how to seize your chances to get a little richer, Mark is hosting an online training event. He’s explaining the ideas behind his favorite wealth-building methods and showing you how to create a sizable net worth in just seven years or less…
To sign up for 100% free access to Mark’s training event, go here now.
Why Brexit Poll Failure Could Be Good News for Donald Trump
One of the main reasons Brexit shocked markets is because most polls didn’t reflect the depth of support for taking Britain out of the EU. Could the same thing be happening with support for Donald Trump?
Scottish Leaders Push for Independence Vote
Scottish leaders overwhelmingly supported Britain’s membership in the EU. Now, they’re warning of a renewed bid for independence after British voters turned their backs on the now 27-nation bloc.
How Machines Beat Human Traders in Bracing for Brexit
Wall Street is tallying up the winners and losers after the severe market reaction to last week’s Brexit vote. One theme has emerged early – the computers got it right and the humans got it wrong.
Judging by today’s feedback… Bill’s tongue-in-cheek issue on Maryland seceding from the U.S. went over well with readers.
Bill, you are a bit of a wing nut – but one helluva brilliant writer. Best in the financial arena by a wide margin.— Dave H.
I just love your sentiments and sense of irony…
I wrote the following comment on a few blogs today. Well, because I can, and because it sums up my interpretation of what has been happening:
"What many failed to have notice is that the Brexiters achieved in one night, what Gordon Brown, Mervyn King, and the current Goldman Sachs apparatchik, Mark Carney, have failed to do with 15+ years of loose money policies. They lowered the value of [British currency] sterling.
“They also appear to have got Scotland to stop leaching off the English, and reunited Ireland. Not bad for a night’s work. Imagine what they could do if given ten years in office?”
Hope it meets with your sense of irony…— Will S.
I just read Bill Bonner’s piece about possible repercussions of Britain’s exit vote. (I thought it was hilarious and thought-provoking!)
The heaviest idea for me was that Northern Ireland could be invited to reunite with Ireland to rejoin the EU. WOULDN’T THAT BE THE IRONIES OF IRONIES!
After all of [Irish Republican party] Sinn Féin’s efforts to bringing about reunification, it would be supremely ironic if it comes about not from anything Sinn Féin does, but from Britain’s actions!
I’d be shocked, frankly, if it comes about this way, but wouldn’t the joke be on Britain if it does?— Philip S.
Texas is next!— Seth H.
Texas is the only state in the U.S. that has right to secede.— William S.
Maybe Obama will put Britain back in the EU by executive order…— Maureen B.
Our goal must still be a free society in which every individual has full control of their life and property; one cannot get somewhere without knowing where they want to go.
It may take another hundred years to get rid of majority rule and any other kind of rule, but it has to come or we will surely destroy ourselves.
So little of what I read advocates freedom of the individual to have control over what is theirs. It is refreshing to read Bill’s comments and be reminded that I am not alone in understanding that freedom is so much more than waving a flag and voting on who should rule.
Thanks, Bill.— Gary N.
Bill, your columns are great, but Maryland can only secede IF it first agrees to take Washington, D.C., with it. What you folks do with it after you’re gone is strictly your business.— John B.
Brilliant writing… I LOVE IT… Thank You!
“Our loyalties are few… and small. We favor the underdog, the diehard, and the lost cause. Yes, we stand shoulder to shoulder with Hannibal at Zama, with Hugh O’Neill in Ireland, and Robert E. Lee at Appomattox Courthouse. We rise at the sound of the bugle and take up arms for the romantic finale – the Last Stand At least, in theory.”
AWESOME WRITING. Totally Agree.— Bramble B.
Our colleagues at Agora Financial took to the streets of Baltimore to demonstrate how easy their newest investment strategy is.
In this entertaining video, they show two people with absolutely no investing experience how to make $127 in the market in less than three minutes.