POITOU, FRANCE – Day ends in night. Life ends in death. Stability ends in instability.

Now, with shadows stretching out in our life, we don’t care much for the program.

It is what it is.

Freaks and Clowns

It has been a quarter-century since the U.S. stock market has been so calm for so long.

Investors were sure the feds had their backs; they forgot how to panic.

But that may be coming to an end. The feds run out of money in October. To borrow more, Congress must raise the debt ceiling.

There is no question about the outcome: The debt ceiling will be raised.

The insiders run the show… and they want the money. But the Deep State is a big-tent operation, with plenty of freaks and clowns, each with his own agenda.

Democrats will demand protection for their social welfare programs. Republicans have boondoggles of their own. And at the center of the Big Top is an aging reality TV winner who desperately needs a win.

It’s going to be fun to watch. But not if you are depending on the feds to protect your assets. This just in from Bloomberg:

The rate on Treasury bills maturing October 12 jumped by as much as 5 basis points Thursday [a basis point is 1/100th of a percentage point], the largest intraday move since March, after Trump blamed Congress’s inability to increase America’s borrowing authority on the Republican leaders in a series of tweets. […]

The surge in rates began Wednesday morning as investors reacted to comments Trump made at an appearance in Phoenix the previous evening, when he threatened to bring the government to the brink of a shutdown if needed to pressure Congress into funding a Mexican border wall.

Bubble Trouble

Over the past eight years, the fix was in.

Central banks added about $15 trillion to the world’s money system… feeding it to financial markets like an expensive drug in an IV.

Even after the Fed gave up its quantitative easing (QE) program in 2015, other central banks kept the vital fluids flowing. The patient never showed much improvement, but the drug company stock went up!

Sooner or later, it had to come to an end. How? When? Today, we ramble through one possibility…

After more than 100 months of rising prices, stock markets are probably ready for a change of direction.

In terms of sales – which can’t be fudged – U.S. stock prices haven’t been this high since the heady days of the dot-com bubble. [For more, scroll down to today’s Market Insight.]

That tells us all we need to know as investors; the idea is to buy low and sell high, not the other way around. Just ask someone who piled into stocks in 1999.

We also notice that stock market margin debt is at an all-time high – at $539 billion. This is money investors have borrowed from their brokers using their shares as collateral.

And as Dan Denning reported in the latest issue of our monthly publication, The Bill Bonner Letter [paid-up subscribers can catch up in full here], there is also more than $100 billion of “shadow margin.”

This is where investors borrow against their stock market portfolios to buy houses or take vacations.

“They use them like homeowners used their own houses in 2007 – like ATMs,” says Dan.

Comic Whirlwind

The stock market’s “internals” don’t look good, either.

For example, students of Dow Theory – who analyze stock charts for clues as to what will happen in the future – watch the performance of transportation stocks closely.

“If they’re not shipping, they’re not selling,” say the old-timers.

The Dow Jones Transportation Average is now below its 200-day moving average (MA) – a widely watched technical indicator often referred to as the “line in the sand” between a bull and a bear market.

So are the great majority of small-cap stocks – stocks with market valuations of between $300 million and $2 billion. These tend to lead the market up when animal spirits are running high… and lead it lower as investors turn more pessimistic.

The small-cap Russell 2000 Index is also trading below its 200-day MA.

The Russell 2000 circa 2017 looks more and more like the Nasdaq circa 1999. Since the U.S. stock market hit its post-crash bottom in 2009, the small-cap index has been going up at a rate of about 10% a year. That’s about five times as fast as the economy that supports it.

Meanwhile, the real economy weakens…

Up and down Main Street – far from the luxuries and bonuses of Lower Manhattan – people go about with long faces and empty pockets.

People with only a high school education have lost income at a rate of about 1% a year during this entire century. Even college graduates have made little progress. Restaurants report fewer diners, spending less money. Auto sales are still slipping.

Google “auto sales down” and you’ll find a long list of negative headlines: “Auto sales down again in February.” “Auto sales down again in March.” “Auto sales down again in April.”

Reporters don’t show much imagination in their headlines. But little imagination is needed to see what is going on: People, too, are running out of money.

The other pillar of the Main Street economy is housing. But there, we see the same thing. New house sales fell 9% in July. And they’re now selling at the same rate they did 55 years ago!

Strange things happen from time to time. 

A tornado could rush through a junkyard and leave a fully-assembled Mercedes 500. But it’s not likely.

And it’s not likely that the comic whirlwind now approaching the nation’s capital will leave anything but destruction behind it.

Watch out…

Regards,

Signature

Bill

 

Market Insight: Stock Valuations Are Reaching “Dot-Com” Territory


BY CHRIS LOWE, EDITOR AT LARGE, Bonner & partners


bill bonner

Another sign that stock market valuations are dangerously overstretched…

Today’s chart is of the price-to-sales (P/S) ratio of the S&P 500 Index.

This tells you how much stock market investors are willing to pay for each dollar of sales earned by the companies listed on the index.

As you can see, investors haven’t been willing to pay so much for sales since the peak of the dot-com bubble in 1999.

Chris Lowe

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Mailbag

In today’s mailbag, readers consider if Trump has been broken

You seem to think that Trump has been beaten. But I wonder if Mr. Trump is doing what most CEOs do when they take over a new company. They normally don’t rock the boat too much to begin with and certainly he needed a coalition of GOP people to start off. Six months later we see the entrance of the hatchet man Scaramucci or whatever his name is. He puts the fear into the staff, drops the hammer on many, scares some into resigning and then goes off on his merry way to enjoy his “spoils.”

Now the President gets to put in the people, maybe, he wanted from the start. I am suggesting that maybe the next six months will be a better gauge on this President than the first six.

– Glenn M.

I guess you’re pretty happy about what’s happening to President Trump, considering that you’ve criticized him at every turn.

– Don T.

You’re pretty tough on Trump. I wonder if you’re equally tough on your second home country (France) when it comes to taxes and regulations.

– James T.

You’re critical of Trump’s foreign policy and his decision to follow the advice of the generals. But I must ask… what would you do? Do you seriously believe that if we just got out of foreign lands altogether the world would leave us in peace?

You are an astute student of history and human behavior. Yet you seem to subscribe to the Ron Paul view of utopia. Heck, Obama tried it your way and see what happened. The real world has never seen peace and probably never will as long as humans live and rule. Just like you defend your homestead, your ranch, etc., a nation defends its interests.

– Erich K.

I’m not an expert on foreign affairs, however, I do pride myself on having an iota of common sense. Don’t you think that if the Taliban and terrorists overseas are let be, especially after we’ve killed so many of them, they just might turn all their perverted thinking to killing as many of us here in North America as they can, since they will not be fighting us over there anymore?

We will never win this war against terrorists, because we perpetually give them reasons to hate us. Now that we’ve got hornets swarming all over the place, it just might be foolish to become a completely walled fortress to the world. We’re damned if we do, and damned if we don’t. There is no win-win here… only lose-lose.

– James M.

You may be right. President Trump may be broken. I hope not. As success in human affairs depends so much on timing. Here is another observation from a historical analyst in the LaRouche organization:

“America is experiencing a descent into chaos, as vulnerable youth and/or desperately poor people, of all races and of all political persuasions, are being driven to take sides in a pre-conditioned violent conflict in which there can be no winners, and all will lose. It is a classic British imperial tactic, called ‘Gangs and Countergangs’ by British Brigadier Frank Kitson in a book by that name, a method the British have since acknowledged was used to crush opposition to their colonial rule in Kenya, in Malaysia, in Northern Ireland, and more…

“The chaos in America is deeply troubling. The American Cultural Revolution, as it has been termed in some Chinese media, has all the hallmarks of China’s turbulent experience… From a Chicago pastor’s call to remove a statue of George Washington… to U.S. Congresswoman Nancy Pelosi’s call to remove Confederate statues from the Capitol immediately…

“LaRoche added another deeply troubling image – the last days of the Weimar Republic in Germany, when nazis battled communists on the streets, driving the chaos that led to the collapse of legitimate government and the horror of the nazi dictatorship.”

– John W.

In Case You Missed It…

Colleague and Silicon Valley insider Jeff Brown just told us something incredible. “Children born in the next 10 years will never have to learn to drive a car.”

That’s because a revolutionary piece of technology is about to completely upend the traditional automotive industry. And early investors stand to make a fortune. Get all the details right here.