YOUGHAL, IRELAND – We’re back in Ireland after a quick visit to France for the Toussaint (All Saints’) holiday.
We went to church, caught up with neighbors, put flowers on a family grave… did a little business in Paris… and got on a plane.
Road to Hell
“I don’t think it makes any difference who we elect,” said a friend over dinner. He was speaking of France. But it could be said of the U.S. too. “The problems don’t go away just because you elect a new guy.”
But our friend was exaggerating. Problems caused by a leader can be eliminated by the scaffold or the voting booth.
The trouble is, the main problems facing the U.S. economy were not caused by President Trump. He has made them worse, but his Democratic opponents are proposing even dumber programs.
Donald Trump faced two major challenges when he fluked into the White House. He had to drain The Swamp (with a balanced budget and “normal” Federal Reserve policies)… and he had to bring the military-industrial-Deep State complex to heel (cut its boondoggle spending; stop the winless wars). He did neither.
And so, the U.S. continues down its long, twisty, sappy road to Hell.
But at least it’s entertaining…
Easy money is an invitation to an accident. And every day, we see some pompous jackass slip on a banana peel. What more could we ask for?
This morning, for example, we read that Japanese conglomerate SoftBank – with its goofy “vision thing” investments – is getting what it deserves. Bloomberg:
Masayoshi Son is finally disclosing the damage from SoftBank Group Corp.’s bets on WeWork and Uber Technologies Inc.
The Japanese investment powerhouse on Wednesday reported its first quarterly operating loss in 14 years – about $6.5 billion – after writing down the value of a string of marquee investments. It swallowed a charge of 497.7 billion yen ($4.6 billion) for WeWork, whose spectacular implosion turned the once high-flying shared-office startup into a Silicon Valley punchline.
SoftBank was out in front. Behind it must be thousands of others… led astray by central banks’ funny money, misleading interest rates, and their own vanity.
Those, too, will have to find their rakes, sinkholes, and banana peels. Ray Dalio, founder of the world’s biggest hedge fund, sees a lot of them coming:
This whole dynamic in which sound finance is being thrown out the window will continue and probably accelerate, especially in the reserve currency countries and their currencies – i.e., in the US, Europe, and Japan, and in the dollar, euro, and yen.
Dalio also seems to see the scam behind the Fed’s “stimulus” policies:
At the same time as money is essentially free for those who have money and creditworthiness, it is essentially unavailable to those who don’t have money and creditworthiness, which contributes to the rising wealth, opportunity, and political gaps.
In other words, the feds are the major cause of inequality. But does any candidate on the national stage offer to fix the real problem? Of course not.
Rev Up the Helicopters
And here’s “Bond King” Jeffrey Gundlach, being interviewed by Finanz und Wirtschaft:
The CEO of the investment firm DoubleLine is worried about the development of corporate debt. But also the levels of government debt and the US equity markets are not sustainable. According to Gundlach, investors have to brace for significant disruptions.
Mr. Gundlach, what would you recommend to investors?
They need to position themselves for the next global downturn because it will lead to substantial changes in the markets.
When will the downturn come?
It doesn’t matter whether it comes in one year or four. If you don’t start preparing now, you will maybe do better while the economy continues to do okay, but whatever gain you get from that will be overwhelmed by problems with your investments in the downturn.
How do you have to be positioned?
Investors should systematically reduce risk. They have to be highly diversified, and that doesn’t just mean financial assets. You should own your house free and clear if you can. People should not own stocks if they have a mortgage.
Nobody seems to worry in Washington about debt and deficits.
They don’t worry because they think that the Fed will monetize it. Maybe they’re right. People have given up on the idea that we’re going to pay our debt back. I don’t think anybody believes it. I don’t see how. The US debt is so high that to pay it back, we would have to retrench so much.
What will happen instead?
You could create inflation through universal basic income. That would debase everything. Or you could default on Social Security benefits and welfare benefits. These are the options. We’ll do some combination, maybe raise the eligibility age from 65 to 75. I don’t know what’s going to happen, but what we have now is unsustainable. The debt is unsustainable. Interest rates are unsustainable. The wealth inequality gets worse every minute. It’s already beyond the point of sustainability, and when the next downturn comes, there will be a lot of anger and unrest.
Will the downturn be the tipping point for these changes?
Yes, because the misery is going to be apparent for a considerable fraction of the population. It’s going to be pretty intense, and the response will be money printing. When Ben Bernanke said, we’ll never have deflation because we have the printing press and when he used the word helicopter money, people thought it was some euphemism, some joke. People thought that that could never happen. Now we have candidates running on it. Kamala Harris has a version of it, Cory Booker has a version of it. And for Andrew Yang it’s the centerpiece of his campaign.
We modestly predict that come the next crisis, whoever is in the White House… Trump, Warren, or the Queen of Sheba… he will rev up the helicopters and toss out more banana peels.
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