BALTIMORE – “It’s over!”

Raúl Ilargi Meijer, a regular contributor to David Stockman’s Contra Corner newsletter, explains that the “entire model our societies have been based on for at least as long as we ourselves have lived is over!”

Meijer again:

That’s why there’s Trump…

There is no growth. There hasn’t been any real growth for years. All there is left are empty, hollow, sunshiny S&P 500 stock market numbers propped up with ultra-cheap debt and buybacks, and employment figures that hide untold millions hiding from the labor force. And most of all, there’s debt, public as well as private, that has served to keep an illusion of growth alive and now increasingly no longer can.

These false growth numbers have one purpose only: for the public to keep the incumbent powers that be in their plush seats. But they could always ever only pull the curtain of [The Wizard of] Oz over people’s eyes for so long, and it’s no longer so long.

That’s what the ascent of Trump means, and Brexit, Le Pen, and all the others. It’s over. What has driven us for all our lives has lost both its direction and its energy.

Shipping Decline

None of this will come as a surprise for Diary regulars… We know nothing makes people poorer faster than too much “money.”

The feds provided the economy with an almost unlimited quantity of credit-based funny money. The money was phony. But it bought real resources. And then, with no need to think carefully about how the capital was put to use, the resources were wasted.

Corporate defaults are running at their fastest pace since 2009. Nine out of 10 households have lost income. And tax receipts for the last quarter fell from the same quarter in 2015.

Adjusted for inflation, real growth in the U.S. economy – as measured by actual tax collections rather than the feds’ squirrelly statistics – is falling.

The world economy, too, is slowing. Lambert Strether of the blog Corrente Wire explains:

I started following shipping… partly because it’s fun but more because shipping is about stuff, and tracking stuff seemed like a far more attractive way of getting a handle on “the economy” than economics statistics, let alone whatever books the Wall Streeters were talking on any given day.

So, what I noticed was decline, and not downward blips followed by rebounds, but decline for months and then a year. Decline in rail, even when you back out coal and grain, and decline in demand for freight cars. Decline in trucking, and decline in the demand for trucks. Air freight wobbly. No Christmas bounce at the Pacific ports.

And now we have the Hanjin [shipping company] debacle – all that capital tied up in stranded ships, though granted only $12 billion or so – and the universal admission that somehow “we” invested w-a-a-a-a-a-y too much money in big ships and boats, implying (I suppose) that we need to ship a lot less stuff than we thought, at least across the oceans.

Get-Rich System

As we reported last week, China’s exports are falling at a 10% annual rate, in U.S. dollar terms.

If you’re not exporting stuff, you don’t need ships to send it anywhere.

But as the global economy sinks, debt rises, financed by central banks. Bloomberg:

The world’s biggest central banks are bulking up their balance sheets this year at the fastest pace since 2011’s European debt crisis to boost lackluster economic recoveries with asset purchases that are supporting stock and bond prices.

Let’s see… How does this work again?

The world has too much debt and too much capacity. Growth slows. Defaults increase.

So what do central banks do?

They facilitate governments adding to their debts… and they finance more capacity.

The feds used fake money to give the economy fake credit… which was used to buy real resources… which were squandered. Now we have an abundance of claims (debt) against declining future output.

How was that ever supposed to work?

An economy is a moral system, after all. It is not a get-rich system. You get what you deserve, not what you want or what you expect.

Over the long run, the economy punishes waste, error, foolishness, impetuousness, laziness, arrogance, and indiscipline.

Americans now are being punished. Gently, so far.

The lash will sting much more later.




Market Insight

By Jim Rickards, Editor, Strategic Intelligence

bill bonner

For most experts, failure is a learning experience that leads to a search for new methods. That’s not true for central bankers. When their policies fail, they try more of the same in the vain hope that quantity will make up for the lack of quality in their ideas.

In the past seven years, major central banks have created over $15 trillion of new money, mostly through purchases of government bonds.

These money-printing and bond-purchasing programs have been called QE1, QE2, and QE3 in the U.S.; Euro-QE in Europe; and QQE (quantitative and qualitative easing) in Japan.

All of these programs and exotic variations, such as “Operation Twist,” have failed to achieve self-sustaining growth anywhere near former trends and have failed to achieve the 2% inflation targets of those central banks.

When investors ask, “Where’s the inflation after all this money printing?” my answer is, “Don’t look at the supermarket shelf; look at the stock market.”

In other words, we have not had much consumer price inflation, but we have had huge asset price inflation. The printed money has to go somewhere. Instead of chasing goods, investors have been chasing yield.

At some point, probably sooner than later, the reality of central-bank impotence and looming recession will sink in and stock valuations will collapse. The drop will be violent, perhaps 30% or more in a few months. You don’t want to be overallocated to stocks when that happens.

This analysis applies to more than just stocks. It applies to a long list of risky assets, including residential real estate, commercial real estate, emerging-markets securities, junk bonds, and more.

It only takes a crash in one market to spread contagion to all of the others.

When this new panic hits (either from a liquidity shortage or bursting asset bubbles), investors will have no confidence in the ability of central banks to limit the panic. Unlike 1998 and 2008, the next panic will be unstoppable without extreme measures – including IMF money printing, lockdowns of banks and money market funds, and possible martial law in response to money riots.

You should have gold and other hard assets to weather this storm. You should never go “all in” on any one asset class, including gold, which is why I recommend putting only 10% of your investable assets in gold.

But you want to own gold now before the next crisis strikes. It could be here much faster than you think.

Editor’s Note: Jim has issued a “Red Alert” about the one big event he sees causing a collapse of the American Empire. It’s just over two months away, but Jim says there’s still time to prepare… if you take action now.


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Yesterday, Bill stirred the political pot some more with an open letter to Donald Trump. Here are some of your responses…

Your reference to Trump supporters as “unfettered by real thought or study” gives me pause. Not pause to agree, but rather to conclude that your comment infers a close comparison to Hillary Clinton’s “basket of deplorables” comment. Careful, Bill, with whom you align your words.

– Tana B.

Keep me on your email list. Mr. Trump may never read or know of your latest writing. But other folks in positions of power and responsibility just may… and they may also agree… and may act in a responsible and intelligent manner. Hopefully more than two “folks.” Have a great day. Thank you, Bill.

– Noel D.

Bravo, Bill. You have hit the nail on the head with this latest piece on Donald Trump – all too true. He is his own worst enemy. But I do believe he is redeemable and will surprise when the election actually takes place.

Maybe The Donald will get the message in time to actually turn the final debate into a genuine rout – with real issues instead of the mudslinging character assassinations that have dominated so far. Here’s hoping he finally gets it.

– Myron M.

Love your open letter! I’ve also been following the recent news about the relationship between Russia and the U.S. It’s beginning to look like a serious conflict is in the making. Especially if Hillary lands the office job. Keep up the good work!

– John U.

I wrote a similar letter to Trump last week about how he should only talk about the issues at the next town hall meeting. Of course, I was much nicer about it. Yours is more to the point.

– Jerry L.

You have done the honorable thing with your open letter. Now, with a few strokes of your pen, endorse [Libertarian Party candidate] Gary Johnson, please.

– Bill S.

I am not a libertarian or a cynic. But if becoming one or both enabled me to write as entertainingly as you, I might consider it.

– Randolph T.

You could have offered your suggestions without the personal attack. It detracted from your message and I hope is beneath you.

– Paul B.

Mr. Bonner, loved the open letter to Trump. If we could vote for the Fed chairman, you’d definitely get mine.

– Richard B.

Well, thanks be to God that he blesses us each century with another Will Rogers. Thanks, Bill, for your cynical wit and truth.

– Dan M.