PARIS – The more time we spend studying it, the more we become convinced that the whole thing is one gigantic swindle. While this insight might be applied to practically anything in public life, we’re talking, specifically, about federal finances and Stimulus Theory.

Many readers think Mr. Trump’s tax cut stimulus has created a real boom.

This boom, they believe, will increase GDP, raise tax receipts, and ease the debt problem. (Mr. Trump even claimed he would pay off the national debt in eight years!)

If true, it will mean that all our theories are defective… that we greatly underestimated the man in the White House… and, in short, that we don’t know shinola about economics!

Trump Boom

So, let’s look. Are you on the edge of your seat? You should be… This is probably the most important question in modern finance: Does stimulus work?

Hmmm… first, let’s look at the GDP figures.

The latest estimate for GDP growth in the first quarter is 1.3%. Zilch, in other words.

But that’s just a quarter… and maybe it’s a fluke. So, we’ll average out the quarterly numbers for the whole time Trump has been POTUS. They come to 2.6%.

Better, but nothing to write home about. And now, we’ll compare them to the average quarterly growth rate when Obama was president to see if there has been any genuine improvement.

What do we get? Just 2.5%.

Does this mean that the only evidence for a Trump Boom is a paltry 0.1% – one-tenth of one percent – increase in growth… an amount which is laughably insignificant and statistically meaningless?

Important Indicators

But wait. Let’s look at some other important indicators. Increasing business investment was a major goal of the Trump tax cut. If business investment increases, it suggests future bump ups in productivity, profits, and wages. Maybe.

Alas, the tax cut seems to have stimulated companies to buy their own stock, not invest in new plants, equipment, training, and technology.

Buybacks are at a record high – more than $1 trillion in 2018 – after hitting new records for each of the last four quarters. But capital investment is about where it was during those awful Obama years, at about 13% of GDP.

And how about wages? There’s been much talk about the working man finally getting a break. Maybe stimulus has worked for him.

But during the first two years of the Trump presidency, real weekly wage growth has actually dropped. It averaged 1.3% (close to nothing) in the last three years of Obama’s rule. Now, it’s even closer to nothing – less than 1%.

Binary Approach

Politics encourage a simple, binary approach to understanding national problems: “us vs. them”… conservatives vs. liberals… Trump vs. Hillary. But the calamity facing U.S. finances goes way beyond the “us vs. them” analysis.

Both Republicans and Democrats now put their faith in stimulus. The Republicans aim to stimulate the economy with tax cuts, military spending, and low federal funds rates. The Democrats look to bigger deficits and more social spending to do the stimulus magic.

Here’s what the Trump stimulus actually has accomplished. The idea was to borrow an additional $180 billion to fund the tax cuts in 2018, alone.

This “stimulus” was meant to light a fire under the economy. It was supposed to cause GDP to go up… along with tax receipts. We’ve seen that GDP did not go up… or at least, not yet… and we presume that tax receipts didn’t, either. Looking at the data, we see they fell – to a four-year low.

So far this fiscal year, tax receipts from individuals are down 3%. And corporations paid nearly 20% less. This brings the total tax take down to nearly 16% of GDP, or lower than it was when Ronald Reagan finished his famous tax cuts.

Here at the Diary, we’ve never met a tax cut we didn’t like. But a tax cut without spending cuts is a fraud… which we’ll describe more fully in a minute.

Rascally Policies

Instead of cutting outlays to offset the tax cuts, the Trump administration increased them. Military and veteran outlays are rising at a 10% rate, interest costs are up 15%, and Social Security/Medicare expenses are up 5%.

And the Trump budget proposes further increases, which would add a total of more than $800 billion to federal outlays – or a 20% increase – over Obama’s last year.

As a percentage of GDP, tax receipts are near a record low for the modern era. Meanwhile, government spending as a percentage of GDP is the highest since the crisis of 2008-09.

Higher spending and lower revenues = bigger deficits.

That is exactly what has happened. In the month of February, more than half of every dollar the feds spent was borrowed. And since taking office, Trump has added more than $2 trillion to the national debt.

Is there any theory – or experience – that makes us think the stimulus policies now being pursued by the Trump Team will lead to growth and wealth in the years ahead?

Not that we know of.

Instead, what we see is a continuation of the rascally policies of the last 30 years, with more and more debt disguised as “stimulus.”

But “stimulus” is a scam. It pretends to boost the economy. But it doesn’t. What it really does is transfer wealth from Main Street America to the Wall Street elite and groups favored by the feds for political reasons.

That was what the tax cut did. It gave away money, mostly to corporate shareholders, and charged it to future consumers and taxpayers. It did not stimulate real growth.

At best, it simulated real growth – briefly giving the impression of a healthy economy as consumers spent their meager tax savings and corporations bought their own shares.

Our guess is that this short, simulated growth spurt ended in the last quarter of last year. That’s why Mr. Trump is calling for a cut in the fed funds rate – more stimulus! – now.

And that is why our Doom Index is giving off sparks.





By Joe Withrow, Head of Research, Bonner & Partners

The explosion of venture capital (VC) investment last year tells us that 2019 is just the start of the tech IPO boom that our chief technologist Jeff Brown talked about yesterday

To illustrate how much money is flowing into private tech companies, today’s chart maps U.S. VC investment by year, going back to the turn of the century.


As you can see, U.S. VC investment hit $131 billion last year. That was a record level that surpassed the previous high set in 2000 – the peak of the dot-com bubble.

This is important because the companies receiving this VC funding use it to grow and mature while still private. That makes them stronger companies… and better investments when they go public.

In fact, many VC-backed companies use a later-stage VC round to put their financial house in order before filing for their IPO. Lyft, for example, raised $600 million in venture capital just nine months before going public.

And as Jeff showed us yesterday, the mature and established IPOs are the ones that often succeed… even in the face of a major market crash.

With 2018 being a record year for VC investment, we can expect to see a wave of seasoned IPOs hit the market in 2019 and beyond.

Joe Withrow

P.S. Jeff believes 2019 will be a banner year for tech companies. That’s because 2019 is the year that trends like artificial intelligence and 5G hit the mainstream.

And once these technologies are splashed on the front page of The Wall Street Journal, a handful of small tech companies will climb higher. The best ones will likely soar by 10x or more, netting investors a small fortune. Details here.


This Year’s Biggest IPO Could Raise $10 Billion
As Joe said above, we can expect to see a wave of IPOs hit the market this year. Next up to bat? Ride-hailing giant Uber. This is set to be among the 10 largest IPOs of all time. And investors are already hungry to see the company’s complete financials, for the first time…

Is the Clock Ticking for Tesla?
It’s hard to read a piece of news on Tesla without seeing something about the CEO, Elon Musk. His social media antics further put the spotlight on the electric vehicle company. But some in the audience of this spectacle aren’t rooting for the company… in fact, they’re betting on its stock falling off a cliff.

The Fed’s Next Desperate Move
As Bill put it recently, America’s Federal Reserve has now abandoned any pretense of sensible monetary policy. Come the next recession, the usual “toolkit” won’t suffice. The Fed will get desperate. And Dan Denning, Bill’s coauthor on The Bonner-Denning Letter, shows just how desperate…


A mixed mailbag today: Trump’s foolishness, a solution for The Wall, and a plea for more ranch stories

You’re right about radicalization. But there are lots of people who see through Trump’s foolishness and are not socialists or fans of AOC. I hope there are enough to make a difference.

– George E.

I am French and had an excellent solution for your border wall. Not in America, but border between Mexico and Guatemala. It would be much cheaper. The U.S. and Mexico should share expenses and enjoy peace, less drugs, less illegal people, etc…

– Gislaine B.

I recently read the book you and Lila Rajiva coauthored Mobs, Messiahs, and Markets: Surviving the Public Spectacle in Finance and Politics. And I quoted it in the book I am currently publishing. It’s essentially about rebellion, revolution, and revival.

– Benjamin A.

I like your writing(s) about the ranch more than I do the financial stuff that I’ve read about the last few days. Keep it coming!

– Richard S.

Meanwhile, a sharp-eyed reader spots an editorial slip…

I think Jeff is either pulling an April Fools’ column a week late, or he has slipped three decimal places. It says there are nearly 1.2 billion AI jobs that companies need to fill right now… But there are only 400 million applicants. That would amount to one job for every six people on Planet Earth, and more applicants than the total population of the U.S. None of this is to say that AI is not a huge trend, but the numbers he posted are simply not credible.

Gordon F.

A Note From Jeff Brown’s Editor: During the course of publishing, Jeff Brown’s editorial team produced a chart that was labeled incorrectly. The incorrect data was published through no fault of Jeff’s. We thank the dear reader for spotting this mistake. The corrected insight can be viewed here.


Bonner and Partners’ chief technology analyst Jeff Brown just released his most important prediction to date…

When Jeff makes a prediction like this, it pays to listen. He picked the No.1 stock in the S&P 500 in 2016 and 2018… And the latter has handed his readers over 160%, so far…

Now, he’s pounding the table on a new idea… One that’s earned him the nickname of “America’s Cockiest Investor.” Read on here for all the details.