DUBLIN – After our trip to Las Vegas, we spent one night in Baltimore and then got on another airplane.
Standing in line, unpacking bags, getting zapped by X-ray machines – it has all become so routine we almost forget how absurd it is.
While armies of TSA agents pat down grandmothers and Girl Scouts, ex-soldiers take aim at the police… nutcases run down tourists with delivery trucks… and a fellow with a grudge against gays nearly wipes out an entire nightclub.
$300 Trillion in Debt
We feel so lucky. It is not every generation that gets to witness so many grotesque things at once.
Stocks are at an all-time high. Bond yields are at an all-time low. And never have so many people owed so much to so few.
Dear readers may accuse us of “belaboring the subject.” Or of “beating a dead horse.” But in today’s Diary, we’re going to lay on the whip again.
This horse isn’t dead at all. He’s got the bit in his teeth… and is running wild…
Stick with us here…
According to our friend Richard Duncan’s latest estimate over at Macro Watch, world debt has climbed to $300 trillion. That’s up from roughly $200 trillion before the 2008 financial crisis. In the world’s five major economies, it has doubled since 2002.
Now, the whole shebang depends on debt.
All of this debt is calibrated in “money,” which is the most extraordinary thing of all.
The key to understanding today’s economy is to realize that money isn’t wealth and today’s dollar isn’t even money.
Normally, money is just a way of keeping track of wealth. It’s like a clock. A clock isn’t the same as time; it just measures it.
The Parasitocracy – led by central banks – pretends that adding more money to the system will make people richer. That’s why they have lowered interest rates to zero and below: to make it easy for people to borrow money.
But adding money is a scam. It’s like slowing down the clock to make the day seem longer.
“There are real limits… real laws… that cannot be modified,” said economist and author George Gilder in Las Vegas over the weekend. “The most important is time.”
At least, the old, pre-1971 dollar was real money; it was anchored in the reality of time.
It takes time to build real wealth. You have to work. Save. Invest. And most important, learn. And it takes time to dig gold out of the ground, too.
And gold – like digital currency bitcoin – becomes harder and harder to get as time goes on.
[Editor’s Note: You can read more about why bitcoins are harder and harder to get in our Weekend Edition of the Diary.]
The easy surface deposits are mined first. Then, if you want more gold, you have to go farther and farther… deeper and deeper… at ever greater expense in resources and time.
The only real wealth is knowledge, says Gilder. And the only real growth is learning. Anything else is a fraud.
In 1971, President Nixon – aided and abetted by economist Milton Friedman – cut the dollar off from its natural limits.
No longer tethered to gold, the gate was flung open… and the horse ran off.
“Gold is part of the real world… limited by time,” Gilder explained. Gold is real money.
But this new money was different. It was “unmetered,” says Gilder. And it was very popular with the feds, the Deep State, and the world improvers.
Unlike the old money, the feds could control it… and decide who gets it. And they could use their cronies in the financial industry to distribute around the economy – as they wanted.
Before 1971, the feds had their hands tied – by real money. They couldn’t create gold. And they couldn’t print too many of their gold-backed dollars.
They had promised to redeem foreign central banks every $35 they created with an ounce of gold. They didn’t have an infinite amount of gold. So, they had to be careful.
The system was self-correcting. If Americans spent too much money on foreign goods, too many dollars would travel abroad. This put our gold stock at risk if foreign governments decided they preferred U.S. gold to U.S. paper money.
Gold was the base of the world monetary system, so a reduction in the gold stock was also a reduction in the money supply.
Money responds to the law of supply and demand like everything else. As the money supply fell, the price of money (interest rates) rose. Higher interest rates then reduced spending… bringing the economy back in balance.
In the pre-1971 economy, it was Main Street – productive U.S. industry – that produced wealth and accumulated real dollars. After 1971, it was Wall Street that controlled access to the new counterfeit money… and made sure it captured much of it.
The new system gave the feds the “flexibility” they were looking for. But it completely changed the nature of our money… and our economy.
Instead of rewarding the people who produced wealth, the new economy gave its hugs and kisses to the people who mongered debt and shuffled financial claims.
More to come…
By Jeff Brown, Editor, Exponential Tech Investor
Some may be surprised, but Apple is absolutely a sell for me.
As much as I love the company, the innovation within Apple has been slowing significantly.
The iPhone 7, which was due out in a few months from now, is unlikely, from my perspective, to be a driver for increased revenues. There really isn’t that much, from a feature perspective, to drive the next round of upgrades.
The rumors are… improved cameras, no audio port, no wireless audio solution.
Equally important is that industry smartphone shipments on the high end are really slowing down. They’re only forecast to grow about 3% in 2016 compared to 2015. And that compares to the about 10%-plus growth that we saw in 2015.
So for the first year since the iPhone was launched in 2007, the number of iPhone shipments this year will actually decrease compared to last year.
Sales in China are falling, and that’s one of the highest growth markets in the world for smartphones.
The Apple Watch forecasts have also been reduced significantly… Apple Pay, which is the company’s contactless digital payment solution, has been very weak in the United States… and the company has been very far behind in terms of the application of artificial intelligence to its software platform.
I see probably about a 20% downside from where we are today, and a complete lack of catalysts to get the company back on track, certainly within the short term (12 to 18 months).
Now, I will say this… There will be a time to get back into Apple, and it probably is in that 12-to-18-month timeframe.
The thing that I’ll be looking very closely for is Apple’s not-so-secret project to have an electric car.
The project, called “Titan,” was originally targeted to have a car by 2019. It looks like it’s been pushed back another year or so to 2020.
But for a company that does $200-plus billion a year in revenue… this year, there needs to be a significant product offering to drive enough revenue to impact its valuation in a meaningful way.
The automotive industry is a perfect example of something that might do that.
The other thing is what the iPhone 8 looks like. If there are any attractive alternatives or new features, that could be a potential catalyst for a major upgrade cycle and increase in valuation.
But for now, Apple is definitely a sell.
Editor’s Note: Tech giants, like Apple, are not the place to look if you want big investment gains. You need to target companies you won’t hear about on TV – ones like Jeff’s November 2015 recommendation, which just inked a deal to be acquired… handing Exponential Tech Investor subscribers a gain of more than 70%.
To hear more about the small tech companies that are set to skyrocket, watch our latest free investor presentation.
Could the Stock Market Hand the Election to Clinton?
U.S. stocks are at record highs. And when stocks are higher in the months before a vote, the sitting party has won 86% of elections. Unless something derails the bull run, that puts Hillary Clinton in the White House.
A Secret Plan to Weaken the Dollar
At a high-level meeting in China, the world’s economic superpowers developed a secret plan to make China even stronger… and it all revolves around weakening the U.S. dollar.
Why U.S. Stocks Are in for a Slide
The problem with the U.S. stock market right now is that too many investors are too optimistic about the future. Investors sentiment is now just as unfavorable as it was favorable only a couple of weeks ago.
Not everyone shares Bill’s views about Nixon’s role in the downfall of sound money…
I always grieve to hear Nixon blamed for the destruction of the dollar when in truth the blame should go almost entirely to President Johnson.
His simultaneous development of the "Great Society" and the Viet Nam war, financed by debt and unrestrained money printing, ruined the dollar. Nixon simply got landed with the unmanageable mess and its consequences. I’m surprised that you and your fellow gurus never blame the real culprit!
A similar fate is coming down the pike for Trump and our present economy. Should he be elected, the helium will (finally) be withdrawn from the stock market and the poor man’s name will forever be the one linked to the ruination of America.
He will no doubt be tarred and feathered and run out of town on a rail, as was Nixon, with the blame never falling on the REAL crooks. Trump probably has as much chance to straighten things out as Don Quixote had with his championship of virtue.
I am almost reluctant to vote for him and help sentence the man to his fate.
– Jeanette V.
I read your letters and there is a lot of sense in them. You complain about Nixon and the loss of the gold standard. But the fact is that the rich get richer the poor get poorer and the middle class stagnate – all largely due to the policies pushed by big business and Wall St… i.e., the Republican party.
At the same time, you denigrate any attempt by Democrats… and especially President Obama… to redistribute all this vast wealth through taxation of the overly wealthy. There is no logic in this. You cannot stop people making money – it’s their nature – but you can stop them holding on to it.
In Ireland we have a saying, “You can only eat one dinner, and there no pockets in a shroud.”
– Chris O.
In Case You Missed It…
We just released a new investor presentation based on the research of tech expert Jeff Brown.
And with Jeff’s June recommendation already up more than 170% in less than a month, you don’t want to miss what he’s eyeing now.