BALTIMORE – We are back in the U.S. for a family wedding. It’s that time of year. People tie the knot, hoping that it will be the win-winningest deal of their entire lives for both of them. And for many, it is.
Most people, sooner or later, believe that they “should” get married. They look forward to it with pleasure, as if they await their income tax refunds.
And here at the Diary, we’re in favor of it. Marriage makes you wiser. Most men are fools, but at least married men know it.
Convenient, Pernicious Myths
The long flight over gave us time to think. Specifically, we were cogitating on the question that disturbed Nietzsche’s sleep, drove Kant into seclusion, and got Socrates killed: How can you tell the difference between convenient, pernicious myths… and those that are useful and true?
How can you tell blue skies from pain or Heaven from Hell?
We give you four tests.
- Time. How long has the myth survived? Generally, the older, the better. It proves that they are useful. Myths survive when they tell us something important that we don’t have to learn for ourselves – often some enduring truth that would be painful or impossible to learn on our own.
The idea of saving is ubiquitous and as old as the hills. “If you don’t save for your retirement, you could end your days in misery,” say the old timers.
But you only live once. If you reach retirement age and haven’t saved, it’s too late to say: “Okay… I won’t do that again.”
That is a lesson best learned from others… by following the myths, old wives’ tales, and moral lessons of the past.
Creating New Myths
Economists used to call themselves “moral philosophers.” They realized that actions have consequences… and that the “moral to the story” – eternal and ineluctable – was what they were looking for.
But those economists are dead. And moral lessons are regarded as “mere myths” by the modern quacks. The old rules felt like a curfew or a stiff collar limiting their movements. So they invented new myths.
The idea that “deficits don’t matter” dates only from 1998, when Dick Cheney used the expression to excuse the runaway deficits of the Reagan era.
But which is likely to be most useful? The idea that you should save your money or that deficits don’t matter? Which is likely to be true? Which is likely to help you manage your financial life… and which is likely to get you into a peck of trouble?
- Scale. Generally, the more personal… individual… and down-to-earth the myth, the more helpful and reliable it is. “A bird in the hand is worth two in the bush” tells us something important: Beware of promises.
Betting one bird in the hand today against two possible birds tomorrow implies a 100% interest rate – daily. Maybe an investor would take that bet. Maybe he wouldn’t.
But imagine $10 trillion of sovereign debt trading at negative interest rates. That depends on a new myth… and a big one: that today’s bird in the hand is worth less than a single bird in the bush tomorrow.
No small-scale, private lender – in an honest market – would take that bet.
Likewise, “deficits don’t matter,” is huge, impersonal, and abstract.
Every fool knows it won’t work on an individual basis. But he imagines that it might be different on a large scale.
And yes, of course, the feds can get away with more foolishness for longer – and on a much larger scale – than you can. But nature doesn’t change just because you get bigger. The fundamental things still apply.
Backed by Violence
- Violence. The surest test is this: Is the myth backed by the feds?
Remember, anyone can make a mistake. But if you want to make a real mess of things, you need the government.
Only the feds claim a monopoly on the use of violence… and only they can use violence to enforce a large-scale, uncorrected myth.
Private, small-scale myths are corrected all the time. You think you are a genius; your wife sets you straight. You think you can drink and drive safely; a telephone pole settles that. You think deficits don’t matter… until the repo man shows up for your car.
But the feds? No myth is too loony, too murderous, or too counterproductive to be cherished for centuries.
They burn witches at the stake… break enemies on the wheel… hang Irishmen, Catholics, and blacks… send Jews and gypsies to the gas chambers… put the guillotine to work on the necks of aristocrats in Paris… and shoot the counterrevolutionaries in St. Petersburg.
Tax, regulate, control, fix prices, pay off cronies… all of it is backed by large-scale violence and myths so absurd as to make gods chuckle…
Later, even humans despise them.
A shortcut to myth-testing: If it is backed by the feds, it is almost surely a convenient lie and not a useful myth.
- Is it win-win? Ah yes… our favorite test.
Useful myths benefit anyone who takes them seriously… The saver. The hard worker. The generous spirit. The caring parent. The good neighbor.
And they do so without harming anyone else. The saver is better off. But so is the borrower; he has more funds available.
The hard worker adds to the world’s wealth, not just his own. The generous spirit helps others… and himself.
The caring parent spares his children the crippling effect of too much money and too little affection. The good neighbor builds a good fence.
The convenient lie, on the other hand, is win-lose. It only benefits some people – at others’ expense.
Mexicans, terrorists, Muslims, Catholics, drug dealers – you can choose any of “them” you want. Someone will find a way to make them pay.
Everybody else loses.
Imagine that your neighbor says that he likes the color blue… and he believes he has the right to tell you to repaint your house so it will be more pleasing to him.
On this scale, the myth/delusion is easily dismissed. You tell him to get lost.
But then, the neighbor rallies all of the nation’s half-wits and meddlers. They say that people whose houses aren’t blue are traitors. They pass a law. Patriot Act II, they call it. Everyone must paint their house blue!
Now, the myth – that he has the right to tell you what color to paint your house – is the law of the land. Same myth, larger scale. Harmless on a small scale. Great for makers of blue paint on a large one.
The myth that deficits don’t matter pays off for some people, too. Bankers, cronies, speculators, zombies… and, of course, millions of other people who get the crumbs that fall from the table.
But it comes at a cost. Every penny of borrowed money must sooner or later be reckoned with. No one knows how, when, or by whom.
Win-lose deals, imposed by the feds, enforced with violence, and justified by some cockamamie lie, are always expensive. And generally, the bigger myth, the more expensive it is.
The war on drugs is thought to have cost the feds $1.5 trillion so far. The war on terror has a price tag estimated at $7 trillion. Even more has been spent on the war on poverty – $22 trillion. As for the fake-money system… how much in real growth, real savings, real capital, and real resources has it squandered?
We don’t know…
But when it blows up, there will be Hell to pay.
MARKET INSIGHT: HISTORIC EARNINGS SEASON
By Joe Withrow, Head of Research, Bonner & Partners
The first quarter of 2018 saw more companies beating earnings estimates than ever before…
A company’s estimated earnings are usually calculated by large brokerage firms. The average of those earnings estimates then becomes a consensus forecast.
When actual earnings beat that consensus, it’s an earnings beat. Stock prices typically jump when this happens.
As you can see from today’s chart, 80% of S&P 500 companies beat their earnings estimates for the first quarter of 2018.
That’s the highest percentage of companies beating earnings estimates ever recorded.
– Joe Withrow
A Haircut in Venezuela Costs Five Bananas
As Bill has reported, Venezuela is in the midst of an economic crisis. The paper currency is worthless. So citizens have found a way to get by: resorting to a barter system.
Tech Embraces Dividends
For years, America’s largest tech giants refused to pay dividends. Investors would have to settle for capital gains. But with Apple embracing dividend payments last year, that trend may be changing.
How to Get Rich Off Volatility
Volatility is here to stay. But while most investors are panicking, master trader Jeff Clark believes that there are fortunes to be made. Here’s how.
In the mailbag, disasters of all sort are the topic of conversation…
In this Diary you stated, “Allowing for a 10% margin, nobody knows when the downturn will begin.” In 1929, many private investors felt the market was oversold and simply got out. I believe there was enough private money removed to spark the 1929 crash. I also believe the same is true today.
At some point, there will be enough money removed to pull the trigger! There have been trigger points, but the Fed has stepped in to save the day! The questions become, “When will the Fed be neutralized? Is there enough private money to pull the trigger?” As you often say, “We don’t know!”
– William C.
I have read about your book and the coming crisis and agree with you that a crisis event is due in the near term (in some 2–3 years max). One argument I would challenge you on is that of the assumption that the U.S. – and the world in general – has been expanding for the last 10 years, based on the false premise of GDP.
Since real inflation rates (taking commodities and assets together) far exceed nominal growth rates per GDP formula, we have, in fact, suffered negative growth or a prolonged hidden global depression for 10 years. We have actually seen the end of growth as we have known it. The evidence is everywhere to be found, not least of which is energy resource, or energy returned on energy invested (EROEI).
– Peter U.
Greetings from the Colorado mountains, land of sovereign citizens and survivalists. I tracked down the article by BJ Campbell that you mentioned in your Diary. Interesting approach to research. Of course, I’m not a big fan of the AR-15 nor the SIG 556. I much prefer the AK-47. It’s perhaps the greatest weapon of mass death in human history, killing, on average, 250,000 people every year.
It’s responsible for more deaths than all bombs in all wars combined (including Hiroshima and Nagasaki). Also, a 10-year-old living in the Khyber Pass can build one from scrap parts. A child can disassemble, clean, reassemble, and shoot it even when it’s been submerged in water and is coated with river mud. Can’t say that for the tinfoil-hat-wearing AR-15 survivalists. Have a great day!
– James P.
There are a lot of really smart people protecting themselves from a market downturn. In 2008, the market dropped more than 50%. We are due. I’m not a money expert, and my bank account is proof of this; but I think it is a good time to think of protecting what you have more than growing it. I hate to think that half of what you’ve worked so hard for will be going away at this late juncture.
– Steve K.
Editor’s Note: Bill agrees. U.S. stocks are overdue for a correction – they could be halved. Your retirement would disintegrate overnight. And don’t even bother going to the ATMs. They’ll be shuttered.
Bill and Dan Denning, his coauthor on The Bill Bonner Letter, have made it their mission to help readers protect their wealth when, not if, that day comes. If you haven’t already, be sure to review Dan’s “new permanent portfolio“ asset allocation strategy.
And if you’re not a reader of The Bill Bonner Letter, then consider joining Bill and Dan today. There are more time-tested strategies you can implement today to protect yourself from the inevitable. Go right here.
IN CASE YOU MISSED IT…
Did you miss master trader Jeff Clark’s insight from yesterday?
Jeff Clark has over 30 years of experience as a professional stock trader. And he believes now is the best time to be a trader in more than 10 years. Fortunes will be made. I’ll let him give you all the details.