GUALFIN, ARGENTINA – This week, we got a surprise.

Eight gauchos rode up, after crossing over the pass from the high “puna.” They dressed in traditional regalia, with their bombacho pants, chaps, boots, wide hats… and each with his knife behind his back.

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The gauchos visit Bill at Gualfin

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The gauchos get refreshed after a long ride

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And the pack animals bring up the rear

With them was a muleteer, Chancho, whose job was to bring the pack animals up the rear.

Mounted on local criollo horses, they had been riding and camping for five days, mostly in the back of our ranch, where it is so far away from the main house, and so high, we have never been able to see it.

Always a Gaucho

A couple of years ago, we organized an expedition to explore the western part of the ranch, where it stretches into a high desert towards Chile.

Our group rode for about 12 hours, out to our most remote “puesto.” There, a lonely shepherd – a woman with a gimpy leg – keeps a herd of llama and lives in a rude, stone house in the upper part of the valley.

We camped next to her house, spending a frozen, wind-swept night studying the bright stars overhead and gasping for air.

In the middle of the night, thus engaged, we decided not to continue. It was too high and too cold. That was about 12,000 feet.

The gauchos didn’t seem to mind it. It’s earlier in the season, so it’s not so cold. And they had approached from the other side of the ranch… swinging far out into the desert… camping at 14,000 feet next to the one and only river in the area. But we will let them tell their story:

“We are all cousins. We’re all descended from Robustiano Patron-Costas, who was a candidate for president of Argentina in the 1940s. Today, we live all over the province, and down in Buenos Aires, but we like to get together every once in a while and do a horseback ride.

“We organized the trip with [our neighbor]. The horses came up on trailers. And then, we rode out behind these mountains [he pointed to the ridge to the west of our house]. It took two days to reach the river that is on the back of your property. We camped there for a day, fishing. We got 20 trout. They were delicious.”

The young man talking was a lawyer, specializing in labor law. He introduced the group. There were journalists and businessmen who made their livings in the city. But there were also some local farmers.

“We don’t dress like this all the time. Well… Pablo does.”

He gestured towards one of the group, whose outfit and its wearer looked as though they had both suffered more wear and tear than the rest. His face was well weathered by wind and sun. And around his shoulders, in place of the traditional jacket worn by the others, was a vicuña shawl.

“Pablo comes from the rich side of the family. His grandfather owned the palacio in Buenos Aires that is now the Hyatt Hotel. He went to good schools. He wore a suit and tie. He speaks English. But he decided he didn’t want that.

“Pablo dresses like a gaucho all the time. Because he is a gaucho. Even when he goes to Buenos Aires… or even to the U.S., I guess. The rest of us are more modern. We have normal jobs and careers. But we don’t want to lose our gaucho roots. I tell people I am a fake gaucho. But it is not true.

“What I really am is a fake lawyer… a fake city-dweller… a fake modern man. I feel most real… most authentic… as if this is really who I am… when I put on my gaucho costume and go riding out into the mountains.”

Originario Trouble

We invited the cousins to join us for dinner in the house. (We offered beds, too, but they insisted on sleeping in a barn.) A jolly conversation, enlivened by more than a dozen bottles of our own Malbec, developed. One of the gauchos explained the originario problem:

“It’s not really a stupid law. It was designed to protect real Indians – people who are living in a traditional way on their traditional land, speaking their traditional languages. And there still are some up in the north, for example.

“When the law came out – that was in the ’90s – the governor of this province should have clearly explained what it was all about. He could have said that it doesn’t apply here. Because we don’t have any people like that.

“These local people who claim to be originarios here are something altogether different. They are not from here. The Inca moved them. And then the Spanish moved them again. And they married in with the Spanish families. They don’t have any traditional Indian culture… or any traditional languages.

“Now, they drive pickup trucks… they speak Spanish… their kids go to the public schools… they collect their welfare checks – just like everyone else.

“They claim to be Diaguita. But there never was a Diaguita tribe. The word comes from the Inca, who used it to describe local Indians they considered inferior. So, it’s really an insult. And it makes no sense for these people to call themselves “Diaguita.” And the guy who claims to be the “cacique” – or chief – of the Diaguita doesn’t even live on the land he claims. He lives in the city and works on construction jobs.

“You know, they want to take your land. They’re claiming all the back part of your ranch… and both of the ranches next to you. But there is no traditional tribe that inhabited those areas. There were several tribes in the valley, but none of them were “Diaguita.” And the real tribes – the Pulares and the Chicoana – no longer exist.”

Cowboy Songs

After the “asado” – an Argentine barbecue – we moved from the dining room to an open fire outside. And the guitars came out. Several of the gauchos had songs to sing. Like cowboy songs, they were sad laments of loneliness and lost love.

We did our part, giving them a poor rendition of Johnny Cash’s “Folsom Prison Blues” and Hank Williams’ “Your Cheatin’ Heart.”

“I know it must seem a little silly,” said a bearded gaucho. “I mean, us dressing up like this. And riding through the hills as if this were the 19th century.

“But it was here in Salta Province that Martín Miguel de Güemes beat the Spanish in the war for independence. And he didn’t have an army. All he had was gauchos. I guess when we do this, we feel a little of his victory… and a little pride in what we are and who we are.”

And gradually, the dark of night deepened… the stars sparkled…

The drinking and singing continued until we all slumped into a sweet sleep of nostalgia, lost dreams, and red wine.

Regards,

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Bill

MARKET INSIGHT: HOW STOCKS GOT HOOKED ON EZ CREDIT

By Dan Denning, Coauthor, The Bonner-Denning Letter

Whatever credibility the Federal Reserve had before Christmas Eve, it’s lost since then…

Under Jerome Powell, the Fed went from intending to raise rates three to four times in 2019 to saying market rates won’t go up again this year. The federal funds rate is stuck at a ceiling of 2.4%.

That means there’s almost no room to meaningfully cut interest rates before the next recession begins, which could be any day now, if it hasn’t begun already (which it has).

Powell allowed himself to be browbeaten by Donald Trump into abandoning the normalization of interest rates. That was bad enough. It’s telling that, after a 10-year economic expansion with record-low unemployment, the stock market simply couldn’t bear a modest reduction in the Fed’s balance sheet without threatening to enter a bear market and causing panic in D.C.

As you can see from the image below, the Fed balance sheet peaked at just over $4.5 trillion in assets in 2015. It consisted mostly of Treasury bonds and notes and mortgage-backed securities. The “runoff,” or quantitative tightening (QT), began in October of 2017. The Fed allowed $10 billion a month in securities to mature without reinvesting in new issues.

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The pace of the “runoff” increased to $20 billion a month in January of 2018, then $30 billion in April of 2018, $40 billion in July, and finally $50 billion in October, when the market finally had enough.

Right before the about-face in December, Powell assured the market that the balance sheet reduction was on “auto pilot.” Combined with no new purchases and the “runoff,” the balance sheet had “shrunk” to under $4 trillion.

But the market freaked, and Powell capitulated.

Where does that leave us now? The loss of political independence will accelerate if Stephen Moore gets on the Fed Board. Moore is Trump’s latest nominee and is a Trump man through and through. And as Bill has been telling you in the Diary, Moore is a true believer when it comes to keeping rates low. But what does that really mean for monetary policy?

It means that in 2019, we’ve come to the end of the road with conventional monetary policy, or using interest rates to try and heat up or cool down the economy.

The Fed has conducted an unprecedented experiment, creating phony money to buy assets. It has distorted market prices so much that the stock market is addicted to easy credit policies and literally cannot survive without them.

The situation is not dissimilar to a drug addict or a patient on life support. Remove the pumps, medications, and tubes and the patient cannot survive.

The Fed’s balance sheet isn’t going to shrink or “normalize.” If anything, it’s going to grow. Like a cancer. And it will kill the patient (the American investor).

Dan Denning

P.S. If you don’t know, our mission with The Bonner-Denning Letter is to protect your wealth from “the big loss.” We look for the big trends coming our way and put you on the right side of history. And right now, we’re seeing a disturbing development taking place.

Call it socialism. Call it financial martial law. Call it the death of win-win capitalism. It’s all the same. And it’s coming faster than you think. Full story here.

FEATURED READS

Trump Continues to Celebrate…
The investigation into special counsel Robert Mueller has become another us vs. them, Democrats vs. Republicans debate. But, as our editor said on Wednesday, it’s all just a distraction to hide a hellish catastrophe. So, maybe that’s why Trump has already begun celebrating…

The Tables Have Turned on Big Tech
Big Tech companies like Facebook and Google have spent years watching us. But enough is enough… and it looks like they’ve slowly gone from watching us, to being watched by us. With both Democrats and Republicans pushing for a breakup of these behemoths, the inevitable “techlash” is well underway…

Modern Monetary Theory Will Destroy Money
Our editor has referred to Modern Monetary Theory (MMT) as “a substitute for common sense.” But Doug Casey thinks it’s worse than that. MMT isn’t just a failed doctrine. It is morally bankrupt… and its supporters should be ashamed.

MAILBAG

Today, another mixed mailbag… more talk about the Fed, a coming economic collapse, and who isn’t a political hack these days?

Nothing against the Fed Chairman. However, we are in a market-driven society and we do not need anyone to manipulate our interest rates. They are dictated by economic performance.

Whoever introduced this policy, way back when, did for his own benefit and his coming generation’s benefit. Let’s once and for all abolish the Federal Reserve.

– Ali R.

Why do you combine Obama’s spending with President Trump’s? The president, and all of us in this country, are being attacked by socialists. There is a lot of money riding on the fall of our great country and the president is trying to keep this from happening. If he doesn’t succeed, we fail as the last hope for the country/world we once knew. Help if you have the answers! At least President Trump has the courage to try to turn around this mess that pure greed has left us.

– Donald L.

Moore is a political hack, yes, but who isn’t in the world of politics today? Is Trump going to nominate an adversarial candidate that happens to be more qualified? Not in this lifetime. Neither would the democrats. I do not get your point here, Bill. Everything is political, from how much you can sell your stock-picking business for, to what you can do next with your money. Win-wins are a passing fantasy.

– Michael C.

When the inevitable economic collapse occurs, all currencies, including cryptos, may become worthless, leaving gold as the only thing with any intrinsic value. But, just as likely, when the world’s fiat currencies are going up in flames, people may abandon them and flock to cryptocurrencies as the viable alternative. Instead of cryptos’ value being determined by how much fiat currency it costs to buy them, they may be valued by how much bitcoin they are worth.

Bitcoin is the only cryptocurrency that you can use to purchase, any and all, other cryptos, making it the de facto “fiat cryptocurrency.” Hence, it is also the logical choice for a default currency, accepted the world over, to replace failed fiat currencies. The only thing that is required is for people to decide that bitcoin is valuable, in and of itself. In the final analysis, that is all that makes any currency valuable… even gold.

– Dale A.

Meanwhile, Doug Casey might have made an enemy after he criticized Alexandria Ocasio-Cortez.

Your rhetoric is surpassed only by your self-serving egotistical opinion that critiques AOC’s solutions on the basis of things that have already taken place, and which have no bearing on her proposals. Shame on you for falsely equating the socialists of the past with democratic socialism. I’ll be sure to expose you whenever, and wherever I can.

– James F.

IN CASE YOU MISSED IT…

Something strange is being discussed at the highest levels in Washington…

That’s the message from Dan Denning, Bill’s coauthor on The Bonner-Denning Letter.

Call it socialism… call it financial martial law… call it the death of win-win capitalism. It’s all the same thing. And it’s coming faster than you think. Full story here.

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