BALLYNATRAY, IRELAND – We have bought a place nearby.
But it will be months before it is habitable.
In the meantime, we need a place to stay. So we’re renting a place on the estate next door.
It’s an apartment built over a boathouse on the Blackwater River in County Waterford.
Sunset on the Blackwater River
The best bet last week was the least popular one: buying Wall Street’s “fear gauge,” the CBOE Volatility Index, or VIX.
One “mysterious trader” was reported to have made a multimillion-dollar bet that volatility (aka price swings) would rise for stocks.
We hope he stuck with it; it should have paid off big time. As it happened, the VIX did not merely go up; it spiked as high as 199%.
What happens next is anyone’s guess. But at least we know that the bear is awake… and on the prowl.
Where and when he will strike next waits to be seen.
In the meantime, we shift our attention to more predictable events. (We know they are more predictable because even we saw them coming.)
We refer to the way in which Democrats, Republicans, and the president are colluding to keep the cash flowing – to themselves, their clients, and their zombie pals.
At the end of last week, in a shameful act of bipartisan recklessness, Pelosi, Schumer, Ryan, and Trump got together not only to fund the government, but also to remove further obstacles to budget hikes.
Now, they are setting out for a wild night on the town – top down, four on the floor, a fifth under the seat… and wedding rings in their pockets.
The GOP tax cuts plus the recent bipartisan budget deal amounts to fiscal stimulus of about 1.25% of GDP this year… and 2% of GDP over the next two years.
That’s more than the emergency stimulus passed by President George W. Bush in 2008 during what was supposed to be the worst economic crisis since the Great Depression.
It amounted to just 1% of GDP.
And it’s only slightly less, in GDP terms, than the “massive” emergency stimulus package passed by President Obama in 2009.
As far as we know, only one person – Senator Rand Paul – made any effort to stop them.
He warned that the GOP was betraying its roots and its responsibilities – which it clearly was.
Naturally, the GOP leadership and the press jumped all over the poor senator for “wasting time.”
So now, it’s party time.
“Laissez les bons temps rouler,” as they say in New Orleans.
As predicted in our “headlines from the future” on Friday, look for $2 trillion deficits – 10% of GDP!
By 2027, we should have a federal debt near $40 trillion.
But that’s the easy part…
The actions of politicians are more or less predictable; the market’s reaction is not. Most likely, the unstoppable force of fed borrowing will collide with the immovable object of the bond market.
The feds are already scheduled to borrow more than $1 trillion over the course of the next year – even without a recession.
This coincides with the Fed unloading bonds at a $600 billion annual pace.
Let’s see: Much less demand for credit… and much more supply.
And no “Powell Put.”
For the moment, the new Fed chief, Jerome Powell, and his governors are staying home, catching up on their Bible reading. The party poopers have forsworn further bond purchases.
So no one is guaranteeing to buy the government’s paper.
Most likely, interest rates will rise… and speculators will begin front-running the Fed.
One of the most looney features of the Bernanke-Yellen leadership years was the “transparency” doctrine.
Unlike their predecessor Alan Greenpsan, who famously spoke in mumbo-jumbo, Ben Bernanke and Janet Yellen telegraphed their intentions to investors.
Unfortunately, neither Fed chief had experience in business… or markets. And they seemed to have no idea how they worked.
Real investing is a win-win proposition: You put your money into a real business. It makes real money. You share in the profits.
Speculating, on the other hand, is win-lose.
Speculators do not buy and sell based on their assessment of the intrinsic value of a given asset. Instead, they look across the table and try to guess what cards other speculators are holding… and what they will do with them.
They look for the “fool at the table” and try to anticipate what dumb mistake he will make.
For the last 10 years, the fool was easily identifiable. It was the Fed.
The U.S. central bank slashed interest rates to near zero to juice up the stock market.
Then under three separate QE programs, it bought more than $4 trillion worth of government bonds at some of the highest prices in history.
And in a breathtaking crescendo of dumbness, it signaled to speculators exactly what it intended to do ahead of time.
Naturally, the other players – hedge funds, Wall Street banks, pension funds, etc. – took advantage.
They bought stocks and bonds knowing they could unload them at higher prices.
Uncertainty is what keeps traders honest. They take chances. But they know their bets could go bad. So they are cautious… and often corrected.
But when the Fed – by far the largest player at the table – tells them in advance what it will do, uncertainty declines.
In this way, the Fed greatly reduced risk. And it was “Party On!” – from excess to more excess, with nothing to stop them.
Now, the Fed – clueless as ever – has once again made its intentions known. It’s going to raise interest rates and let the bond pile it built up during QE shrink… removing an important prop from the market.
How long will it take traders to put two and two together now?
Betting against it – by selling stocks and bonds – should be a piece of cake.
By Chris Lowe, Editor at Large, Bonner & Partners
Stocks and bitcoin are traveling in the same direction…
One of the claims of bitcoin enthusiasts is that bitcoin is a good cushion against stock market losses.
That’s because bitcoin is supposed to be what Wall Street types call an “uncorrelated asset.”
It zigs when stocks zag.
But as you can see from today’s chart, that’s not the case right now.
Since its all-time high in November 2017 of $20,089, bitcoin has plunged 58%.
That was followed by the S&P 500, which has fallen 9% since its peak last month.
– Chris Lowe
How Warren Buffett Handles Corrections
U.S. stocks officially entered correction territory last week. That has some investors on edge. Here are a few pieces of Buffett wisdom to help keep things in perspective.
More Proof That the Middle Class Is Dying
Malls across America are closing in the wake of the “retail apocalypse.” But malls that cater to the ultra-rich are doing just fine. Is this more evidence of the erosion of the American middle class?
How to Prepare for the Next Market Catastrophe
After last week’s volatile trading, many investors are taking a second look at their portfolios. Chris Mayer, one of Bill’s top analysts, shares three things you can do today to prepare for the unknowable.
In the mailbag, Bill’s headlines from the future are a hit…
You may just be spot-on with your headlines for the future!
– Lynn K.
I have one issue with your Friday article regarding future headlines: You are making the assumption that Donald is still there by summer.
– Stephen L.
Meanwhile, disbelief from a reader over Bill’s newest real estate purchase…
I have read some of your books, the Diary, and other writings for some time now, and like my email, it’s a lot of claptrap about a lot of claptrap! What’s this about centering your publishing business in Ireland? Don’t you know the next Ice Age (perhaps a mini one) is around the corner? Ireland is sure to be under ice, along with your office! Then, no more claptrap! Well, other than from the usual sources.
Property in France… Are you feeling okay? Yes, the French love us Americans, no? And then, the topper: a desert ranch in Argentina in the middle of nowhere where the cows are thin and the grapes are dry, with fake natives taking back your land to boot. And always buying broken down places to raise them back up. You, Bill Bonner, are the King of Claptrap!
– Mathew H.
Bitcoin is tumbling. It’s down more than 50% since December.
But Jeff Brown, Bill’s top technology expert, isn’t worried. In fact, he predicted this crash months ago. Now, he’s found ways for readers to profit from the cryptocurrency explosion without ever logging on to a cryptocurrency exchange. Read how here.