RANCHO SANTANA, NICARAGUA – According to yesterday’s mailbag feedback, your editor “certainly is the MOST unpatriotic intelligent person in the country. A closet LEFTY…
“If [he] is SO smart and has all the answers, he should get off of his dead ass and try and help us all save our country. If it was easy, anybody could do it. That why we need Donald J. Trump!!!”
Dear readers are annoyed with us. They elected “The Donald” to cure whatever infirmity they believe afflicts the country.
They wonder why we don’t carry his bag and open the door for him. Perhaps we are malingering or holding back. Apparently, we could help save the country, if we’d only try.
But let us first return to the latest news…
The Fed gave us another quarter-point rate increase yesterday. That makes the third such hike in the last 10 years!
Whoa! Hold on… We can’t take that much excitement.
But wait… The Fed also signaled that it may abandon its “data dependent” position and take the lead.
Instead of reacting to the news… it may lead the world’s interest rate levels back to normal, regardless of what the headlines tell it.
Oh, dear reader, you already know this is not going to happen. The Fed can never voluntarily return to sound money and market-set interest rates.
It presides over the biggest bubble in stocks and bonds the world has ever seen. Without underpriced credit, the whole thing would collapse.
That’s why the Fed can only take baby steps toward normalization… and only so long as they don’t matter.
We’re entering our ninth year of near-zero interest rates. During that time, businesses, investors, speculators, and consumers have adapted to extraordinarily cheap credit.
They’ve used it to refinance their debts… and drive up their stock prices. They’ve used it to sell automobiles and buy houses.
The big players have gotten used to gambling with money that is almost free. And if they get into trouble, they can borrow more.
If the cheap-credit system were to end – or even if people were to think it is coming to an end – it would take about two minutes for the whole capital structure to fall apart.
Businesses couldn’t refinance. Bonds would crash (except for U.S. Treasurys… which would get a temporary boost on “safe haven” buying).
Stocks would repeat their move of 2008–’09, but probably worse.
Because they’re more overvalued. By some measures, they are pricier now than EVER before.
Compared to sales, monetary velocity (the rate at which each dollar in the economy is spent), and GDP growth, the S&P 500 is more expensive than it was in 1929, 1999, or 2007 – all major peaks that preceded major crashes.
Warren Buffett’s favorite market indicator also puts this stock market way out on the “overvalued” edge of the spectrum.
Buffett compares the value of the S&P 500’s “market cap” (the total value of all outstanding shares) with the size of the economy that supports it, measured by GDP.
Anytime the ratio goes over 1-to-1, stocks are overpriced.
Today, U.S. GDP is approaching $19 trillion. And the total value of stocks is about $22 trillion. This puts the ratio at 1.2-to-1. For reference, it was only 1.1-to-1 before the 2008 crash.
We can’t predict the future. But the risk of a crash shouldn’t be ignored.
And when it happens – it’s bound to sooner or later – it will take the Yellen Fed about five minutes to abandon its leadership role and become a “data dependent” follower.
Whatever It Takes
Looking at the data from a crashing stock market, the Fed will slash rates again…
And it will roll out QE4 – the fourth round of its quantitative easing program to buy bonds, and even stocks, with money created out of thin air – along with as much other mischief as the feds feel is appropriate.
This is no secret…
Mario Draghi, a former Goldman guy who now heads the European Central Bank (ECB), announced the anthem for central bankers around the world a couple of years ago.
In answer to what the ECB would do to protect its member banks, bankers’ bonuses, and the wealth of the rich, “Whatever it takes,” he said.
We don’t know what it might take, come the next crisis, to keep this fake-money system afloat. But whatever it is, we are sure that the Fed will give it a try.
Reformer or Rascal?
Meanwhile, cometh Donald. J. Trump…
Savior or scoundrel? Reformer or rascal? Hero doctor… or vainglorious quack?
The ailment afflicting the U.S. is “swamp fever” – with too many programs, too much money, and too many regulations that benefit Deep State cronies but hurt the Main Street economy.
There are three major ones. Now we have heard from the president on all of them.
The military: He says there is to be more of it. And in his preliminary 2018 budget proposal, there is a $54 billion windfall for the military-security industry.
Wall Street: Mr. Trump hasn’t even mentioned it. Instead, he has put Goldman Sachs alums such as Steven Mnuchin and Gary Cohn in key positions, signaling no change to the Clinton-Bush-Obama fake-money system.
And entitlements: Last week, the president said he was “proud” of the Republicans’ “Obamacare Lite” health care reforms.
We don’t know whether the new plan is better or worse than the old one. But one thing is for sure: From the Deep State’s point of view, it is not much different.
Military… Wall Street… entitlements… The rest is detail.
Tomorrow, we continue yesterday’s campfire tale – including why the U.S. empire’s financial system is doomed… and what you would have to do to get the economy working properly again.
Further Reading: Next up in Market Insight… Chris Lowe tells you about the big bitcoin news you may have missed. Read on below.
BY CHRIS LOWE, EDITOR AT LARGE, Bonner & partners
Big news for bitcoin enthusiasts…
This month, for the first time ever, the price of one bitcoin surpassed the price of one ounce of gold.
As you can see, on March 3, bitcoin hit $1,277 versus a price of $1,236 for an ounce of the yellow metal.
And even after a gold rally yesterday, one bitcoin is just $8 below the gold price.
— Chris Lowe
P.S. Bitcoin was the best-performing currency last year – rising a stunning 120%. It was also the best-performing currency in 2015. And colleague Teeka Tiwari at Palm Beach Research Group believes 2017 is going to be an even bigger year – not just for bitcoin… but also for many other “cryptocurrencies.”
Teeka recently released a new presentation on how you can profit from these explosive gains. His readers have already locked in profits of 22.9%, 195.7%, and 230.8% in 90 days from the fastest-growing cryptocurrency plays. And he believes your profits could be even bigger. Click here to learn more.
Why Gold Is Rallying on Higher Rates
Common wisdom says gold falls when interest rates rise. That’s because the higher yields elsewhere make zero-yielding gold losses less attractive by comparison. But that’s not what happened yesterday…
“Dutch Trump” Fails to Deliver
The Netherlands’ anti-immigration and anti-globalization candidate, Geert Wilders, whom some have called the “Dutch Trump,” was soundly beaten in yesterday’s widely watched elections.
Why I Don’t Focus on the Overall Market
Chris Mayer, one of the best stock pickers in the business, explains why he pays little attention to Mr. Market. In fact, he says, “When people start talking about the overall market, it just doesn’t have much meaning to me.”
The response to yesterday’s Diary – “The Dollar Is Not Real Money… America Is No Real Republic” – was far more tame…
But first, a self-proclaimed “deplorable” gives his take on Bill’s Iron Law of Truth: Any event or idea loses its real meaning by the square of the distance from it, the size of it, and the time elapsed after it.
Bill, you must have taken a different type or level of mathematics in college than we deplorable college grads. Each time you enlighten us with a new mathematical formula explaining your conclusions, I can’t seem to prove it’s mathematically accurate.
Could you be using a math book published by the deep state or swamp critters! Well, math was never my strong suit. Maybe we should use that saying “when life deals you lemons, you should make lemonade”.
Since our hero has appointed so many Goldman Sachs people to his administration, we should invest in Goldman Sachs or in Goldman Sachs investments. How could we lose? Let’s see. GSi + $$ = $$$$$ (-Taxes = $). Oh well, you can’t blame a deplorable for trying.
– Ken D.
And now, for yesterday’s feedback…
Dear Mr. Bonner, Amen and amen. Looking forward to tomorrow’s missive and more of you campfire tale.
– Christine C.
When Abe Lincoln went to war to force the southern states to remain in the union, the country became an “empire”, the federal mafia was born, and the 10th amendment became meaningless.