BALTIMORE – Oh, Dear Reader, imagine our alarm! Feel our pain!
We were like the boy who saw on the news that his school was on fire.
When we left the office on Friday… the federal government was just hours from shutting down! We crossed our fingers… and dreamt of Eden.
As St. Paul might have said, from now on, even those who have wives will be as though they had none, those who have wealth will be as paupers, and those who voted Republican will be treated as Democrats…
On Sunday morning, we rose from our bed and looked out our window, expecting to see the smoke in the distance.
But the sky was clear. The power still worked in the house. It was warm. The water worked, too.
Later in the day, we went about our business as usual – we went to church and the hardware store.
You can imagine our disappointment. Everything was as before. Ding dong, the witch was not dead.
Almost all the coverage of President Trump’s first year in office – and the “shutdown” – misses the point.
The Wall Street Journal, for example, headlined its lead story on Friday with: “The Year That Upended Washington.”
“The Donald” has rustled feathers. He has said things others wanted to say, but had the good sense to keep their mouths shut. He has offended and embarrassed millions… and appalled millions more.
But he has not upended much of anything. Conservatives and rabble-rousers can get an applause promising to “Drain the Swamp.” But who really wants to?
Even the most die-hard conservatives – if there are any left – don’t want this show to end; they’ve got front-row seats!
No, Dear Reader, the government will not shut down. The Swamp is still there – bigger, deeper, and slimier than ever – and open for business.
Mr. Trump’s $30 billion border wall will add a few inches of water. The $80 billion of additional military, industrial, and anti-terrorism boondoggles will raise the water level still more. And the tax bill – that should be good for almost a foot.
Taken together, they will bring the feds’ borrowing in 2019 to $1.2 trillion.
That’s more than President George H.W. Bush created in his entire four-year term. And he sent troops into Kuwait… oversaw the federal bailout that ended the 1989 Savings and Loan Crisis… and presided over the 1991 recession, which ate into the government’s tax take.
Imagine what will happen when trouble comes for Mr. Trump’s administration.
Trouble is always our focus here at the Diary… and recently, we’ve been wondering how the scam ends.
Increases to federal spending… and unproductive “private” spending commanded by the feds… appear to be unstoppable.
In addition to spending by the military-industrial-anti-terrorism complex, there are also the transfers to the domestic health-education-welfare complex.
About 10,000 boomers retire every day. As they do, open-ended federal programs – particularly Obamacare – spend more money.
Politically, these “entitlements” are almost impossible to stop, since both the Deep State cronies and the lumpen zombies support them.
But where is the money going to come from?
Almost unnoticed in last week’s salacious news was a little item on page B1 of the Journal: “Treasury Yield Hits 3-Year High.”
Coming into focus is an immovable object. After falling for 30 years, bond yields are now going back up.
As you’ll see in today’s Market Insight below, the yield on a 10-year Treasury note hit a 12-month low of about 2% last September. Since then, the yield is up 29%.
Central banks all over the world are realizing that they need to tighten up so that they’ll have some “ammunition” available when the next credit crisis hits. Interest rates are rising.
Ours is an economy that lives on debt.
If lenders were unable to extend more credit – or if interest rates were to spike up – the whole kit-and-caboodle would implode.
That is what a credit crisis does.
All of a sudden, the money disappears… interest rates soar… and households and corporations – whom the feds have trained to depend on cheap, plentiful credit – go broke.
And then, what can the authorities do?
Let’s see… They can admit they made a horrible mistake, actually shut down parts of the government, and let the system purge out the bad debt, inflated asset prices, and excess spending.
Or they can do as scoundrels always do: lie, cheat, and steal.
By Jeff Clark, Editor, Jeff Clark’s Market Minute
The bond market is getting nervous. And that nervousness should eventually spill over into the stock market.
Let me explain…
Long-term U.S. Treasury bond prices fell more than 1% last week. They’ve fallen 4% since early December. That’s quite an ugly move for a government-guaranteed bond.
As a result, interest rates – which rise as bond prices fall – have spiked higher. For example, the yield on the 10-year Treasury note hit 2.64% on Friday. That’s 30 basis points higher than where it was one month ago. It’s almost 60 points higher than where it was in September.
That’s the sort of move that often occurs a few months ahead of an important stock market peak.
Think about this…
Back in January 1999, the 10-year yield was just 4.5%. One year later, it was 6.75% – a spike of 50%. The dot-com bubble popped two months later.
In March 2007, rates bottomed at 4.5%. By July, they had risen to 5.5% – a 22% increase in just four months. The stock market peaked that September.
Here’s how the 10-year Treasury Note yield looks today…
The 10-year yield hit a 12-month low of 2% last September. Today, it’s near 2.65%. That’s a 29% increase in less than four months.
The interest rate signal is flashing bright yellow…
Now it’s not a sign to sell everything and head for the bunker. It’s not a signal telling us to aggressively short the stock market. The price momentum is far too bullish to do that.
This interest rate signal is just a friendly reminder to be a little bit careful. Maybe start looking for ways to protect your portfolio – like raising stops on long positions, or buying some protective puts.
It’s like Grandma reminding us to put on sunscreen as we head out to the beach. Go ahead and have fun in the sun. Maybe there’s nothing to worry about after all.
But with a little protection, you can avoid getting burned.
– Jeff Clark
P.S. Each day in my free e-letter, the Market Minute, I take a look at the trends taking shape in the market… and show you how to prepare for the trading day ahead.
To receive the Market Minute in your inbox every day the market is open, sign up with one click right here.
How Wall Street Is Reacting to the Government Shutdown
As Bill mentioned, the U.S. Federal government has shut down. While politicians in D.C. are blaming each other, here’s how Wall Street is reacting…
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American automakers are taking their businesses in a new direction. They’re killing off decades-old models and refocusing their resources elsewhere.
The Crypto Crash Is Temporary
Cryptocurrencies fell hard last week. The entire market cap of the crypto industry was cut by as much as 40%. But Jeff Brown, Bill’s top technology expert, isn’t worried. Here’s why…
In the mailbag, the reappearance of Bill’s “Doom Index” has sparked conversation…
I’m anticipating that you will raise your doom flag and shout it from the rooftops, if and when the time is right. I don’t expect anyone else to do it.
Isn’t it about time for a new headshot, Bill? It wasn’t a good photo when it was new, and it certainly hasn’t improved with age.
– Ken H.
You can’t seem to see a “melt-up” when it hits you. What do you think we have been witnessing for the last few months? At the very least, your Doom Index is months early. I think you fail to account for Yogi Berra’s wisdom that predictions are hard to make when they involve the future.
To be sure, one of these days, you’ll be right though. Until then, I will look on the bright side without losing sight of the possible effects of the negatives.
– Erich K.
Say one buys into the notion of an impending crash. If one’s life savings are in a 401(k) with limited investment options like various stock funds and a bond fund, how can one prepare for a crash, besides putting one’s head between one’s knees and bracing for impact? Take a huge penalty and cash out?
– Dave S.
There is only one solution to prevent total annihilation. You have to abolish money completely, I mean completely, and now. For that to happen, we have to get rid of megalomaniacs and psychopaths in the U.S. government and replace them with people of higher consciousness: the wise people. The people who have understanding beyond a three-dimensional world.
Please don’t say it cannot be done. When you have only one option, of course it can be done. The first step is to persuade people that there is only one option.
– Mike M.
You’re the best! I always enjoy your witty, pithy, tongue-in-cheek commentaries! I guess when I finish laughing and cackling, I’ll have to start crying, since right now, “it doesn’t look too good for the home team.”
– Rick D.
This would be like owning shares of alcohol companies before the end of Prohibition…
That’s the message from legendary speculator Doug Casey. Doug is referring to the gold rush happening in legal marijuana stocks. And he’s found five small-cap marijuana stocks that are primed to skyrocket. Details here.