POITOU, FRANCE – Here at the Diary, we walk on the sunny side of the street, even at night.
So today, we look at the bright side of bad news.
For example, yesterday we saw what a disaster the Nicolás Maduro government has made of Venezuela.
Consumer prices may be rising at a million percent per year… which must be hard to measure, because there are so few consumer items to buy. The shelves are nearly empty.
But did this ill wind blow no one good? Of course not.
Venezuela’s accidental healthcare initiative is a stunning success. As reported in Newsweek, last year, the average person in the country lost 24 pounds. That was after he shed 19 pounds the year before.
This weight-loss program is extremely effective. But we caution Venezuela’s ruling elite to take a glance at our book, Hormegeddon.
In it, we demonstrate how the law of diminishing returns can apply to almost any aspect of society: politics, the economy, finance, etc. Push a good thing too far, we wrote, and the returns not only diminish, they reverse.
[Subscribers to The Bill Bonner Letter are invited to read a free electronic version of Hormegeddon here.]
Hormegeddon explains why Maduro may not want to take things too far. It’s one thing to lose a little weight. It’s quite another to starve to death.
Radical weight loss is something Americans can look forward to. We don’t know how long it will take to get there, but Venezuela shows us what a determined government can do.
When bad politics takes over a good economy, it is just a matter of time until the shelves are empty and the fat comes off.
You, dear reader, may point out that this weight-loss program comes at a huge cost.
Government policies in Caracas have put 90% of the population on the poor side of the poverty line. And, of course, those are the people who lost weight. But the good news is… they are also the people who probably needed to lose a few pounds.
In America, too, a nationwide financial catastrophe would have its upside.
The richest one percent has notoriously captured most of the income and wealth gains of the 21st century. On the income ledger, it had about 17% of national income going into the century. Now, it has about 20%.
And on the balance sheet, household wealth was larded by some $60 trillion since 1999 – overwhelmingly going to the wealthy (who own stocks, bonds, and real estate).
Of that $60 trillion added since the dawn of the millennium, a disproportionate share has gone into the pockets of the wealthiest. Now, the “One Percent” owns about 40% of the entire stock market wealth of the country.
Does “inequality” bother you? More good news: You don’t have to worry about it… We will soon get “disaster relief.” Which is to say, the coming crash will take care of it.
That’s the upside of the downside. Wrongs get righted. The mighty are brought low. The meek are lifted up.
The rich in America were the unwitting, but very willing, recipients of the feds’ stolen goods. In the coming crisis, the poor may lose weight… but the rich will lose their ill-gotten gains.
One of the subtle scams of the fake-money system is the way it steals wealth from people without them realizing it.
The poor feel like failures. The rich think they are geniuses. Both are duped by their own money system.
The feds put in fake money. As Joe Withrow showed recently, the Fed has pumped more than $4 trillion – money created from nothing – into the system since 2008. This added nearly $20 trillion to stock market prices alone.
But real wages and salaries remained the same.
If you had financial assets, in other words, you got rich. But there are still only 24 hours in a day; so if you had only your time to sell, you got nothing.
Hell in a Handcart
The One Percent of Caracas has bank accounts in Miami. As Venezuela goes to hell in a handcart, the rich are protected.
But America’s rich are stuck. Their wealth is in dollars… and in inflated U.S. stocks, bonds, and real estate. They won’t escape.
Which brings us to more good news: Donald Trump’s trade war. Of course, it is absurd and disastrous from an economic point of view.
Here’s Harvard professor and conservative economist Robert Barro in The Wall Street Journal:
The underlying mercantilist view – that there is no downside to cutting off imports because our benefits from international trade arise only from what we sell – is, frankly, ridiculous.
Living without foreign-produced goods hurts Americans more than our trading partners. And the calculations only get worse when one factors in the inevitable retaliation. Foreign countries have already begun restricting U.S. exports. They are also entering into free-trade arrangements that exclude the U.S. It is hard to complain about Japan expanding trade with other Asian countries or the European Union, but this expansion comes partly at the expense of U.S. exports.
There must be an upside. But where?
It is right there in front of us. The trade war – if pursued – is likely to bring the high-flying One Percent down to earth… and wreck the entire capital structure.
The entire $60 trillion that was gained in the 21st century could get whacked.
Most to Lose
Wealth is relative. While everyone will end up poorer from a trade war, those who would lose the most are those who have the most to lose. What came so easily will go away just as easily.
Remember, “money” is just a way of keeping score. Long-time Diary readers may remember this idea from our parking ticket explanation.
The rich grew rich “on paper”… They had more of a claim against the cars, houses, factories, land, furniture, and time of others – everything we regard as real wealth.
Which is why most people might actually prefer a trade war. Even though it would make the country poorer as a whole, it would hit the rich harder than the poor, leaving the latter relatively less poor.
That is also why we argued that a real, serious trade war was unlikely. The One Percent stole its wealth fair and square. It won’t want to give it up.
And it is among this One Percent that you’ll find both the Deep State and The Donald himself. When they realized what was at stake, we expected a clever insider would have a word with the president and clue him in.
But now, we’re not so sure. Mistakes are made. Accidents happen, even those with surprising upsides. Trump is now threatening $500 billion worth of Chinese imports. The Chinese are vowing retaliation.
Mr. Barro continues:
At first I thought the president’s rhetoric about trade restrictions wouldn’t be translated into major action. But it is now clear that he, reinforced particularly by Commerce Secretary Wilbur Ross, is committed to a trade war. This policy constitutes a serious depression risk, analogous to that from the Smoot-Hawley Tariff of the 1930s. […]
Mr. Trump doesn’t deserve to be impeached for his myriad instances of political incorrectness, but he may deserve to be impeached for his trade war.
Our advice to the One Percent: Get out while the getting is good… Turn some of your “paper” assets into real assets while you still can.
P.S. You don’t have to be part of the One Percent to turn some of your financial assets into real assets. As our coauthor Dan Denning has shown in the pages of The Bill Bonner Letter, “definancializing” your life is an option for anybody. Dan and I crafted what we’re calling the “new permanent portfolio” to help readers do just that.
MARKET INSIGHT: A DANGEROUS DYNAMIC
By Joe Withrow, Head of Research, Bonner & Partners
Two-year Treasury notes are now paying investors nearly as much as 10-year Treasury notes…
That’s the story of today’s chart, which maps 2-year Treasury yields against 10-year Treasury yields from the start of 2017 through today.
As you can see, 2-year Treasury notes now yield just 28 basis points (0.28%) less than 10-year Treasury notes. Compare that to the start of 2017, when the 2-year Treasury note yielded 123 basis points (1.23%) less than the 10-year Treasury.
This suggests that investors see short-term risks rising faster than long-term risks… And they’re requiring greater compensation accordingly.
As we have discussed before, this dynamic suggests that trouble may be brewing in the economy and the financial markets.
Specifically, if the yield on a 2-year Treasury note goes above the yield of a 10-year Treasury note – known as an “inversion of the yield curve” in financial circles – trouble is usually not far behind.
The last two times the 2-year Treasury yield rose above the 10-year Treasury yield – in 2000 and 2008 – recessions followed.
– Joe Withrow
A Surprising Winner in the Age of “Fake News”
Companies like Facebook have been under fire for hosting content on their platforms that was either misleading or outright untrue. In response, the social media giant has been forced to spend mountains of cash moderating content on its site. And this trend has been a boon for one industry in particular…
Credit Cards Can’t Handle Venezuela’s Inflation
As Bill showed above, Venezuela’s inflation rate is running out of control. It’s gotten so bad that credit cards can no longer process the purchase of multiple items at once. Buying lunch in Caracas? Hamburger, swipe. French fries, swipe. Coke, swipe.
And read also…
Could Venezuela-Level Inflation Come to America?
It seems impossible, but the U.S. is not immune to the troubles playing out in Venezuela. Nick Giambruno, Casey Research’s globetrotting analyst, believes we could be headed the way of Caracas. Here’s why.
A buffet of thoughts in the mailbag: military coups, Venezuela, and Tesla’s Elon Musk, for starters…
I think you will be proven correct in connecting the dots. I connect the dots in three ways: 1) a military coup; 2) a SWAT team; 3) the Secret Service will “flip”… Regardless of which of the three options turns out to be the right one, Trump will be picked up by his armpits, removed from the Oval Office, and put on a plane to Russia. Seriously, how did you get to be such a good writer?
– Charles S.
Thank you for your wonderful letters each day. Now, as for the “assassination attempt” in Venezuela, it seems to me that the real answer to the bombing is an “own goal” (i.e., a set-up by Maduro)! He had this arranged to scare everyone into believing there was an attack when there really wasn’t – a fake attack, just like what occurred in Turkey! No one seems to have mentioned this option. Maybe you can throw more light on this.
– Ian S.
The only way Tesla stays relevant is by going private. Not sure how funding will continue with never-ending losses, but I’m not an investor in Tesla’s car or company. Keep the news coming, Bill. It’s appreciated.
– Phil H.
Meanwhile, some barbs in Monday’s mailbag continue to draw response…
I find it hard to believe that many of your readers are convinced that you must be of the left or right politically, and so they hang on your every word to confirm their own opinions on your particular views. Why is it so hard to believe that one can have no political leaning, but be of the belief that all politicians and parties are cut from the same cloth. That is the system we have in the Western world today. Your readers are looking for that “gotcha!” moment where they can scream, “I told you Bill was a Democrat!” (Or the opposite, depending on the topic of the day.)
I am in Australia, and we have the same laughable problems where both sides of politics pillage their own supporter bases. Keep up the humor and open-minded thoughts; my main takeaway from your writings is that we cannot expect things to get better in the future… Not to be a pessimist, but capitalism is fighting much stronger forces than it can handle.
– Sean F.
None of your detractors have ever presented a coherent, well-thought-out, full argument against anything that you have said. Sure, they throw out isolated factoid tidbits that sound good. However, they don’t stand up to your well-reasoned, deeply researched, intelligent, factual discourse underpinned by history.
I thank you profoundly for refusing to swallow mainstream hype parroting the mindless, inconsistent, despicable, worthless, and self-serving tripe regurgitated by the denizens of the Deep State day in and day out… and for your uncommon help in figuring out what the facts are, where we have been, and in which direction we are headed. You often underline the fact that no one has seen the future, and you can be as wrong as you are right about your observations; however, your analysis is bang-on! Please keep up the excellent work, Bill!
– Hussein D.
I don’t know who those angry readers were who were irate at your criticism of this holy cow or another. Well, maybe not a cow at all. As far as I can see, you always remind us of your own limitations – particularly, your upsetting inability to see the future. I think you do a fantastic job of dispassionately analyzing actions and probable reactions. You illuminate the situation for us, your humble readers. Please keep on connecting those dots for us. It’s useful. Your humor doesn’t hurt, either. Thank you.
– Opher L.
It sounds to me like you have an awful lot of readers who “can’t handle the truth.” You are one of the few people who can admit to themselves that the good ole US-of-A is in a lot of trouble – as is most of the world because when America sneezes, the world catches a cold.
– Steve M.