Trouble ahead, Lady in red

Take my advice you’d be better off dead

Switchman’s sleeping, train hundred and two is

On the wrong track and headed for you

– “Casey Jones,” Grateful Dead

POITOU, FRANCE – And so… the trains gather speed.

The Ol’ Deep State Cannonball is chugging up from Washington… and the Manhattan Money Machine is barreling down from New York – headed straight for each other.

Our guess: When the two meet up, there will be Hell to pay.

Stool Pigeons

By the end of last week, the folks on the political train had a new source of entertainment – a singing trio known as the “Stool Pigeons.”

Yes, Dear Reader, three of the president’s oldest and closest advisors have now “flipped.”

Singing tenor is Michael Cohen, Trump’s personal lawyer and former “punching bag.” And now, he’s been joined by Trump’s old pal, David Pecker, singing bass.

Pecker, publisher of the esteemed literary journal, National Enquirer, is said to have a whole safe full of hot torch songs, including “Is That All There Is?” by Karen McDougal and “You Gotta Give Me More Than That” by Stormy Daniels.

The third member of the trio is CFO of The Trump Organization, Allen Weisselberg, already famous in some music circles for his Nixon-era hit, “Follow the Money.”

The trio will do a medley of songs. Most of these tunes follow the usual formula: Boy meets girl. Boy gets girl between the sheets. Boy pays girl to keep quiet about it. Boy and his fixers figure out how to disguise payment.

But they get sloppy and, apparently, breach federal campaign finance laws.

This is bound to be a big hit; they’re sure to win a Grammy. And it’s not hard to figure out why. After all, we’ve all been there, right?

Trouble Ahead

Among the tunes we haven’t heard yet on primetime will be some that are already well known in the bars and nightspots of the Big Apple.

“Sleazeball,” for example, is a song about greasy business deals between greasy business people on both sides of the East River.

Stiffing creditors… using bankruptcy to avoid paying bills… tax avoidance (evasion)… lying… phony invoices – all the usual stuff.

The New York Times and The Washington Post will hope to get a song or two on the Russian election interference theme, too… But our guess is that the trio doesn’t have any material on that subject; if any really damaging info was available, it would have come out by now.

Most likely, there isn’t any. And most likely, the whole election interference jingle is a waste of time. Of all the seedy people who tried influencing the 2016 presidential election, the Russians were probably among the least of them.

And thus, distracted with silly ditties and fulminating gossip – “drinking coffee and smokin’ big cigars”… switchman sleeping – hardly anyone aboard either train bothers to look out the window.

If they were to do so, they might want to slow down. From Bloomberg:

Federal Reserve Chairman Jerome Powell said the fundamentals of the U.S. economic expansion look strong and support the case for continued gradual interest-rate increases.

“There is good reason to expect that this strong performance will continue,” Powell said Friday in remarks prepared for the Kansas City Fed’s annual policy symposium in Jackson Hole, Wyoming. “I believe that this gradual process of normalization remains appropriate.”

The Fed chairman must tantalize the gods. They must surely see a fool… and race ahead to set a trap.

Normalization (Mistake #2) means higher real interest rates (it is not normal to lend money below the rate of inflation).

But the whole world economy – especially the U.S. government – now depends on the Fed leaving rates abnormally low (Mistake #1).

The feds are now running deficits of about $70 billion a month. As the Fed proceeds with its quantitative tightening program, it will increase the feds’ borrowing costs and drive up interest rates.

Crash ahead!

Dreadful Math

Remember, credit is offered by the financial industry. But debt is paid by Main Street industries. So small increases in interest rates can have big consequences in the real world.

There is about $250 trillion in debt outstanding globally. So even a 1% increase in interest adds $2.5 trillion in financing costs worldwide.

That money must come from either issuing more credit or leaving less output for other things. But central banks are cutting back on credit issuance. And global output is only about $90 trillion total. Here is the dreadful math of excess debt.

Every 1% move in interest rates equals almost 3% of global GDP being diverted to servicing debt:

In the U.S., total debt – compared to GDP – is even higher. Every 1% increase in interest rates means more than a 4% extra charge to the real economy.

That’s why it doesn’t take a very big move in the credit cycle to bring down the whole economy. Recession ahead!

And then, there’s the trade war. That, too, comes with alarms ringing all up and down the tracks.

Today, there is little chance of a real “win” in a trade war (tariffs are already low… other barriers are more complex… and not easy to deal with).

But there is a pretty good chance of a catastrophic “lose.” That’s because the aforementioned $250 trillion of world debt depends on the aforementioned $90 trillion of GDP, which depends on trade at today’s levels.

Anything that reduces trade also reduces GDP… and makes it harder to keep up with the debt repayments.

So, watch out… There’s trouble ahead.

Stay tuned…

Regards,

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Bill

P.S. Before you go, we have one favor to ask of you, Dear Reader. We founded Bonner & Partners in 2009. The hope was to bring you, the reader, a different view of the financial world… beyond what you read on the front pages of Bloomberg or see scrolling along the screen of MSNBC.

It’s been nearly 10 years now. And we were hoping you could tell us how we’re doing. If you’ve subscribed to any of our publications – perhaps you’ve read the works of Chris Mayer, Jeff Brown, Chris Lowe, or Dan Denning – tell us what you think so the rest of the world can know.

If you like what you’ve seen so far, great. If not, that’s also okay. We promise we won’t take it personally. You can go right here to leave your thoughts.

MARKET INSIGHT: WHY TECH MARCHES HIGHER

By Joe Withrow, Head of Research, Bonner & Partners

Tech stocks beat Wall Street’s quarterly revenue estimates nearly 70% of the time…

That’s the story of today’s chart, which maps the top sectors that have consistently beaten analyst revenue estimates going back to 2001.

Chart

Once a quarter, publicly traded companies report earnings. Analysts who provide research coverage of a company will issue a forecast for earnings. The average of these earnings forecasts is often called a “consensus estimate” or “Street expectations.”

As you can see, tech stocks have beaten analyst revenue estimates 68% of the time since 2001… often leading to big price gains for individual companies immediately following their earnings reports.

In second place, real estate stocks beat analyst estimates 67% of the time… followed by financials at 62%… and healthcare stocks at 60%. And you can see that all sectors beat analyst revenue estimates 60% of the time.

This is one reason why the tech-heavy Nasdaq is up 15% in 2018… while the more distributed S&P 500 is only up 8% on the year.

– Joe Withrow

FEATURED READS

Funding: Not Secured
Elon Musk, CEO of Silicon Valley carmaker Tesla, shook markets when he announced plans to take Tesla private. Now, Musk has a new message: Never mind…

The Fed Could Be Making a Mistake
As Bill wrote above, the Fed is in the process of gradually hiking interest rates. Fed chair Jerome Powell has already hiked rates twice this year, and may hike them once or twice more before year-end. The president says he’s “not thrilled” about future rake hikes, and neither is the market…

How Trump Legalizes American Cannabis
In the next few weeks, a particular strain of cannabis could be legal in the United States. But we’re not talking about pot. Casey Research’s Nick Giambruno shows how one of America’s favorite cash crops steps out of the shadows.

MAILBAG

In the mailbag, Bill’s Diary, “How the Deep State Impeaches Trump,” has gotten readers talking…

Please get your facts correct; the president is not guilty of breaking any election laws.

– Gary J.

Bill, you mean how does our government impeach this lying piece of treasonous garbage? We’ll just have to wait and see. Deep State, my ass!

– Leon

Your opinion is noted but not agreed upon. The president has been blunt and truthful; that is what makes him appealing over the airheads in Washington, Hollywood, and the media. We have needed someone like him for years; now, we finally have one. We want to know why we always had to give away the taxpayers’ money to other nations and get nothing but disrespect in return. Tell me you never thought that.

– Thomme

Greetings, Bill, the work you and your team are doing is very important. The “little guy” will never hear anything resembling the truth from Wall Street or the (“truth isn’t truth”) political class, so the information you are providing gives us a chance to even the playing field, even if only a little bit.

– Brian K.

Meanwhile, as Bill’s coauthor on The Bill Bonner Letter, Dan Denning, embarks on a roadtrip to find the great American bolthole, one Dear Reader has misgivings…

I’ve been following Dan’s bolthole quest with some interest. While it’s nice to hear that it’s still possible to find such places of refuge from “coastal madness,” has it ever occurred to you that those of us who have already found a suitable bolthole might feel a bit uneasy reading of his poking around? I know that I don’t want to wake up to 37 new neighbors as a result of Dan’s latest bolthole discovery.

– Dick N.

IN CASE YOU MISSED IT…

We just got off the phone with Jeff Brown, Bill’s go-to tech expert.

Jeff told us how Magic Leap, one of the most richly valued private companies in the world, just released its first augmented reality (AR) product for the consumer market…

Jeff thinks AR devices could be “the next iPhone.” But in order to work to their full potential, these futuristic goggles will need this one piece of technology first.

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