GUALFIN, ARGENTINA – Nothing much to report from Wall Street, Washington, or the ranch…
So we continue our look back at what we have learned so far…
Most of what we know, of course, is what everyone else knows, too:
Stocks are near record highs… with the Dow closing at nearly 25,000 last Friday… and the so-called FAANG stocks – Facebook, Amazon, Apple, Netflix, and Google – hitting levels not seen since the Nasdaq crash in 2000.
Include Microsoft and Nvidia, and you get a combined market cap of $4 trillion… up 23% this year and 69% over the last 12 months…
…debt is at a record high, too (and scheduled to go much higher). Not only are the feds borrowing at an unprecedented rate, The Wall Street Journal tells us that consumers are, too:
Interest rates are on the rise, but that hasn’t curbed Americans’ appetite for consumer debt.
If anything, consumers are borrowing more on credit cards or through auto loans than they have in years, and lenders seeking growth are happy to oblige them.
…interest rates are still about as low as they’ve ever been (the Fed Funds rate is at 1.42%)…
…and the “expansion” is one of the longest on record, at 105 months (the average is only 58 months). And it’s the weakest ever.
How these things came to be is a matter of debate. Some will say they represent the “inherent strength of the U.S. economy.”
But here is where we peel off from others. Here is where we think we know something they don’t.
Is the economy remarkably resilient? Yes. Resourceful? Yes. Strong? No.
The growth rate – probably the best measure of “strength,” has been generally softening for the last 30-plus years. And what “growth” there is… is spotty. Some areas are doing much better than others.
As we saw last week, the big urban agglomerates, with many immigrants, tend to be dynamic and prosperous. Many other areas have been left behind, especially in former manufacturing regions of “flyover country.”
Some people, too, have done very well.
The richest 10% has gotten almost all the wealth gains of the 21st century. That means 90% of the population has gotten nothing.
The median man, for example, has lost real income (when adjusted for inflation), not just for the last 18 years, but for the last 40.
Adjusting for inflation is always a treacherous exercise… and usually rather squirrelly.
But a man in 1978 only had to work about 1,000 hours to afford the standard model F-150 pickup truck. Today, he has to work 1,200 hours.
That ain’t getting ahead. It’s falling behind. His major asset – his time – has become 20% less valuable. Meanwhile, stock owners have generally gotten much richer, with the real value of the Dow up about 10 times since the late ‘70s.
In 1978, the common working man could have labored for about 200 hours and fully participated in American capitalism by buying the entire 30 Dow stocks. Today, he has to work 1,130 hours to buy the same capital assets.
The typical working stiff feels he has been cheated. But that’s another thing we think we understand and others don’t.
He’s been cheated. But not by the Mexicans… or the Chinese… or by bad trade deals. He’s been cheated by his own elite.
Hillary Clinton, George W. Bush, Alan Greenspan, Barack Obama, Janet Yellen, Mitch McConnell… and many thousands of others, most of whom don’t even realize that they are enabling the greatest rip-off in history.
These people are the insiders… the lobbyists… the Wall Street sharpies… the bureaucrats and cronies in government… the academia… the military/security complex… the medical industry… the mainstream media… and many others.
They make up a loose collection of elite who control the government and use it just as you’d expect – for their own benefit.
No matter who is in the White House, no matter which party controls Congress, these people – with their own internal rivalries and internecine wrangling for favors – are the real deciders. We call this group the Deep State.
You see, another thing we’ve realized is that the government is not really there to serve the “people.”
It is there to serve the people who control it. Who are they? Our elected representatives? The president? Hardly.
They don’t even know what it is doing. The federal government is far too large… with far too many fingers in far too many pies for the elected representatives to keep track.
That’s why lobbyists write the important legislation… such as last year’s tax cut… or Obamacare… or the recent tariffs on steel and aluminum. The politicians don’t even read these complicated rules and regulations.
Why does this happen? As government grows larger… and time goes by… smart people – the great Italian economist Vilfredo Pareto called them the “foxes” – figure out how to take charge.
This is not at all surprising.
It has happened to every government that ever existed. From ancient Rome, to the court of Louis XVI, to the Soviet Union, there is always a group of insiders who manage power for their own benefit.
Why does this matter?
In 1971, President Nixon ended the convertibility of the U.S. dollar to gold. Almost without realizing it, the Deep State got control of America’s dollar. By 1987, they had learned how to use their control to boost their wealth far beyond anything they had seen before.
But now, they face a new test: Their fake-money system may soon explode.
More to come…
By Joe Withrow, Head of Research, Bonner & Partners
The long-term relationship between gold and gold stocks just broke down.
That’s the story of today’s chart, which tracks the relationship between gold and gold stocks as measured by the NYSE Arca Gold BUGS Index (HUI).
As you can see, gold and gold stocks tend to move in the same direction. But in January of this year, gold remained steady… while gold stocks plunged 12%.
This divergence has not happened since the HUI was created to track gold stocks in 1996.
– Joe Withrow
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Last year, Bill Bonner Letter coauthor Dan Denning warned that big tech companies like Facebook would soon face a day of reckoning. In the face of a massive data breach, the social network is now in hot water.
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Cryptocurrencies have had a rough start to 2018. After hitting $20,000 last December, bitcoin is now back below $10,000. But one of the world’s top crypto experts says the crypto market is gearing up for a second run.
In the mailbag, Friday’s Diary, “Why Wall Street’s Seasoned Pros Are Jumping Ship,” has sparked some comments…
After reading your Diary, my only hope is that people will keep up their confidence in all fake money and that it will go around the world at various speeds, touching everyone. Otherwise, it’s scary for investors. But for the rest of us, we might at least have food and rent.
– Shawn D.
I’ve been reading your Diary for a long time and I’m always impressed by your insight and your ability to “tell it like it is,” with no fear of reprisal. Since Trump can’t seem to keep his “Yes Men” in his cabinet and agencies because they either have a rap sheet or can’t please him, I’m going to go on Twitter and recommend that he take you on as his financial advisor. Of course, you wouldn’t last but a New York minute because neither he, nor anyone else in Washington, wants to “hear it like it is.”
– James B.
Meanwhile, a response to Friday’s mailbag…
One of your readers, Joana L., said, “How does one quote the Bible and moments later, malign the president?”
I have been reading your Diary for years, but I have never once thought about responding to one. This time, I just couldn’t stop myself.
Joana, your statement indicates that you attribute some type of holiness to the President (spelled with a capital “P” by those who want to show respect for the office) and/or our government leaders.
Wake up! Our government leaders – Republicans and Democrats – are about as dear to God today as were the biblical people of Sodom and Gomorrah. (After all, they do seem to have a similar lifestyle.) What a frightening thought that people think God gives his smiling approval to government leaders who make themselves rich by killing untold thousands of His children. “Woe unto them who call evil good.” (Isaiah 5:20)
– Ron W.
Bill’s coauthor on The Bill Bonner Letter, Dan Denning, just published a new book. And what it reveals is startling…
Dan writes that the next market crash is looming. But this one won’t be an accident. Dan believes the next crisis could be orchestrated by a shadowy group right here in America. Dan calls them “the Oathkeepers.” Get your very own copy right here.