GUALFIN, Argentina – The Great Zombie War is proceeding as expected…
Cannons to the left. Cannons to the right. And a fool on every corner.
It will become more and more dangerous, we predict. Then in a fiery ball of hyperinflation and bombastic imbecility, it will all be over…
If we’re lucky.
Then we will return to sanity – older, wiser… and much poorer.
Nuts to Lend at Zero
But that won’t happen in a day. Or a week. Or even a year.
Yesterday, the stock market bounce that began at the end of last week reversed course.
The Dow closed down 114 points. This left the U.S. stock market with its worst monthly performance in five years.
This alone is meaningless. Markets go up and down. Nothing new there.
But this is a very special market. The very special policies of the Fed, and other major global central banks, have been made especially dangerous.
Whoever heard of lending money for zero interest? Are they mad? Does capital have no value at all? Is there no longer any virtue in saving money?
Yes, it is nuts to lend at zero. But the Fed has been keeping its key lending rate near the zero bound for the past 80 months.
And when you lend money for nothing, you have to expect that other things will become a little nutty too.
And so they have!
As President Reagan’s budget adviser and outspoken Wall Street critic David Stockman points out, not a penny of this EZ money has gone to the real economy.
Instead, it has all ended up encrusted to the bottom of Wall Street’s yachts.
Total outstanding household debt is 3% lower today than it was in the first quarter of 2008 – on the eve of the global financial crisis.
Instead, the impact of all that free money has gone to corporations, as money managers and individual investors “reach for yield” in the stock market.
That is to say, it’s gone to the cronies and the zombies.
The Weakest Link
We (sunny optimists that we are) might readily believe that U.S. corporations used this loot to build new factories, hire new people, develop new products, and deliver new and better services.
Since 2007, capital investment by U.S. corporations has fallen. Most of the money was used to pay bonuses, buy back shares, and otherwise manipulate stock prices for the benefit of the C-suite cronies.
Meanwhile, the inflation-adjusted median household income is down so far in the 21st century.
So, if households earn less … and if they aren’t borrowing more… consumers must have less money to spend, right?
Then how could U.S. corporations – the businesses that provide households with products and services – possibly be worth more money?
The S&P 500 has risen by almost 200% since its March 2009 low, right after many of these self-serving policies began.
And it trades on a price-to-earnings ratio that has only been higher three times before in history. These were in 1929, 2000, and 2007 – all major stock market peaks.
And there we have the weakest link in the zombie-crony-Feds’ defenses: Stock market prices can be manipulated… but not forever.
The stock market is too big. With too many players.
Mr. Market may be subject to influence. He may get a little wild and crazy from time to time. But sooner or later he goes home and sleeps it off.
And yes, you can fool him some of the time, but not all of the time. Eventually, he always comes to his senses… and then, watch out!
That is the drama that began last week. Investors headed for the exits all at once.
That’s when the zombies, the cronies and their partners-in-crime at the Fed immediately let it be known that they were capable of escalating the financial violence dramatically.
It was as though New York Fed president William Dudley had shown up wearing an explosive vest.
“Stop the rush for the exits,” he yelled. “Or I’ll blow this market sky high.”
A Lunatic Prophecy
Forget the “return to normalcy,” promised earlier this year by the Fed; the financial authorities are ready to do “whatever it takes” to keep this bubble fully inflated.
At least one analyst quickly realized what this meant. As reported in a MarketWatch headline: “QE4 and Dow 25,000.”
We felt like adding an exclamation point. But with a headline this loony, none was necessary.
And yet… the headline is probably prophecy as well as lunacy.
The zombies, cronies, and feds will stop at nothing to hold on to power and money. They stole it fair and square, they say. And they ain’t giving it up…
Meanwhile, these same forces of darkness and destruction opened fire on another front last week.
They took the “barbarous relic” – gold – out of the money system in 1971, leaving us at the mercy of their paper money.
Now, they’re aiming to cut us off from paper money too – leaving us at the mercy of bank credit, which they control 100%.
That’s right, governments around the world are plotting to do away with cash all together…
Yes, it’s crazy. But it’s coming. You won’t even be able to buy a pack of cigarettes without the feds’ approval.
Strategically, this is a shrewd move. It would leave us encircled, unable to get supplies and cut off from our lines of retreat.
Like Generalfeldmarschall von Paulus at Stalingrad, we would be vulnerable to complete annihilation.
More to come…
There is a growing consensus that investor worries over China’s shaky stock market are to blame for the recent U.S. correction.
But the Chinese market crash began in June. U.S. stock indexes were a sea of calm until late August.
China may have provided a high-profile catalyst. But it’s more likely that stalling U.S. corporate earnings fueled the recent sell-off…
As you can see from today’s chart, S&P 500 earnings-per-share growth has lost momentum in 2015.
In the first quarter, S&P 500 companies grew earnings at an annual rate of 2.2%. That slowed to a growth rate of 1.3% in the second quarter.
And according to Thomson Reuters, earnings are expected to fall by 3.3% this quarter.
As legendary contrarian investor Gerald Loeb put it, “The market is better at predicting the news than the news is at predicting the market.”
“Crash Season” Is Upon Us… Here’s What to Do
September is far and away the worst month for stocks going back to 1896. Should you tighten your exposure to stocks, ahead of “crash season”? Not necessarily, says Mark Hulbert…
Why I’m Hoping for an Interest Rate Increase
History doesn’t support the flood of fear that accompanies every potential rate increase. In fact, there are opportunities for profitable investment out there no matter what interest rates do.
A Major Warning of a Global Slowdown in Trade
South Korean exports are a reliable bellwether of global trade. And they just experienced their sharpest year-over-year fall since August 2009. Exports plunged 15% in August from a year ago.
Some great feedback today on Bill’s warning of another credit collapse… and why you should have some dollar cash on hand. (You can catch up here.)
Just listened to your findings on the credit collapse scenario.
Curious about the thought of dollars being in short supply and the need to store dollars, as it were.
Others such as Stansberry Research have indicated the fall of the dollar from its current position as a world currency standard. My interpretation of this would be that the dollar would lose value.
The logic associated with the credit collapse with the dollar in a position of short supply in the U.S., if I interpret correctly, the logic is the dollar will rise in value.
– Gary B.
I have been listening to Bill Bonner telling us to get our money out of the bank, or at least have a good supply on hand.
Why? If things become as dire as he predicts, what good is it?
I thought paper money was like an IOU from our government.
Chris comment: Two important distinctions…
First, whether the U.S. dollar will continue to be the world’s reserve currency is a separate issue from what will happen to your savings at the bank in the case of another credit collapse.
As Porter Stansberry recently said in an interview with Bill:
Second, the dollar is indeed an IOU from Uncle Sam to the bearer of the note. A dollar bill is a liability of the federal government and an asset of the dollar bill holder.
But as Bill warns, a bank deposit of a dollar is different. It is an IOU from the bank to you. It is a liability of the bank and an asset of the deposit holder.
As such, in the case of a collapse of the banking system, a dollar bill will not disappear as an electronic bank deposit might.
Do you trust the banking system with your money?
Send Bill and the team your thoughts. Write to[email protected]
In Case You Missed It…
Our friends at Casey Research are offering you an opportunity to get a FREE copy of their newest report: The Top 7 Stocks That Will Soar in the Coming Gold Rally.
It’s part of their warning about a “gold event” on the horizon. To hear more about that warning – and to secure your copy of the report – go here. And don’t delay… this offer expires Thursday.