LAS VEGAS – It was 113 degrees outside when we rolled through Baker, California, a few days ago.
We drove along in comfort, but our sympathies turned to the poor pilgrims who made their way to California in covered wagons.
How they must have suffered!
Our suffering didn’t begin until we checked into the Planet Hollywood Hotel in Las Vegas.
What a horrible place. You stand in line for half an hour to get your room key – even after you’ve checked in online. Then if you leave your key in your room, you stand in line for another half an hour to get another one.
The music blares; the lights flash; the slot machines beckon.
The décor is garish and ugly. The food is hit or miss. The staff are helpful only insofar as they can tell you which line to stand in. It is like Hell with air-conditioning.
But we didn’t come to complain; we came to learn.
“Go back and read President Nixon’s speech from 1971,” urged old friend Adrian Day, whom we met while standing in line in the hotel lobby. (The nice thing about the hotel is that you have plenty of time to talk to friends, if you happen to be standing in the same line at the same time.)
“But it’s taken us into such a strange world… No one knows what to make of it,” he continued.
What to make of it is our subject for this Friday… and for most other days. So, we continue our exploratory surgery on the modern money system. But the body is so alien, so Frankenstein-like, it is hard to make out what is going on.
The strangeness of today’s financial world is illustrated most emphatically by negative interest rates.
As colleague Chris Lowe reported this week to members of our global research service Inner Circle [paid-up subscribers can catch up here], $12 trillion of sovereign debt now trades on subzero yields.
ALL Swiss government debt now carries on a negative yield. And Japanese government bonds trade on negative yields out a half-century.
Meanwhile, the German government just issued its first bond with a negative yield.
It’s the first time ever that investors have accepted a negative yield on the first issue of a bond. Typically, yields fall into negative territory as bonds get traded back and forth… and prices (which move in the opposite direction to yields) get bid up.
Even private corporations – with no power to tax or print money – are beginning to sell bonds with negative yields.
Yes, it’s not just the German government that is setting milestones. A German bank has become the first corporation in history to which people were so eager to lend money that they paid for the privilege.
“Time is money” is the old expression.
You work all your life. You save some of your earnings. Your callouses and your savings represent real wealth – the wealth you have produced, and not consumed, during your career.
But in a negative-interest-rate world, you may just as well have spared yourself the trouble. Real savings appear to have zero value. Go figure.
Savings used to be the driving force behind the stock market. Seeking to put their money to work, investors bought stocks, providing businesses with the funds they needed for expansion.
But now, there is no need for that either. Central banks are buying up the world’s stocks and bonds. The Bank of Japan is now a top-10 shareholder in 90% of Nikkei stocks. And yesterday, the Dow rose 134 points, even as more and more real investors seem to be leaving the field. Apparently, the Fed and other central banks (indirectly) are the major source of demand for U.S. stocks.
“We must protect the dollar from the attacks of international money speculators,” Nixon told the nation in August 1971, announcing wage and price controls… and the end of Bretton Woods, a gold-backed dollar system.
Of course, he was doing no such thing. He was killing it himself, breaking a solemn pledge, honored by 35 presidents before him, to exchange U.S. paper dollars for gold at the statutory rate.
Instead, we would pay our bills to the foreigners in a new currency.
“The time has come for a new economic policy for the United States,” Nixon continued in his TV address.
At first, we thought the break with gold would be inflationary. We rushed to gold for protection.
The price of the yellow metal rose nearly 20 times. Stocks fell. In real terms, the stock market dropped as much as 65% from its mid-1960s high.
Afterward, things took a new direction. Japan boomed. Then China followed with an even bigger boom. And Walmart’s everyday low prices got lower and lower, as cheap goods flooded the market.
Interest rates dropped, too – for the next 35 years. With the help of the Japanese and the Chinese, Fed chief Paul Volcker tamed inflation in the consumer sector.
But it ran wild in the stock and bond markets. From a base under 1,000 in 1982, the Dow is now in record territory – 18 times higher.
Perhaps without even realizing what it had done, the “Parasitocracy” had created a vast rentier system. Few of the rich, of course, had any idea what was going on. The voters and Congress were completely in the dark. But the system was relentless and insidious. The rich got richer; everybody else grew (relatively) poorer; and the Parasitocracy grew more powerful.
On Monday, we will slice deeper into the monster… and pull out the strange heart itself…
By Jeff Brown, Editor, Exponential Tech Investor
The global market for personal computers (PCs) has been shrinking… but you might be surprised by how much.
PC shipments peaked at 364 million units in 2011. And it’s been all downhill since then.
The current forecast for 2016 is 261 million units. This represents almost a 30% drop in unit shipments in only five years.
Forecasts for future years show nothing but further declines for the PC market. See chart below.
Why is the PC market contracting so quickly?
The global workplace has shifted significantly toward using mobile devices such as smartphones and tablets, rather than PCs. As a result, companies such as Intel, that have built their businesses around PCs, have been suffering.
Despite the downturn in PC shipments, Intel still has a solid dividend yield of 3.79%. It also has healthy valuation numbers. Its enterprise-value-to-sales and enterprise-value-to-earnings ratios are around 3 and 7, respectively. Numbers like these are normal for a high-growth company.
But Intel’s overall revenues have been stagnant since 2014, and it’s only going to get worse.
Two years ago, the Intel’s data center and server business unit provided for strong growth back. But in 2016, this business has started to show weakness due to reduced information technology infrastructure spending, as well as increased competition from companies like Broadcom and Cavium.
Intel’s current valuation, declining PC sales, and weakening data center business unit present significant downside risk to Intel’s stock price. Given that, I cannot recommend investing in this company.
Instead, I prefer to look at growth companies with more sustainable business models. Companies like Analog Devices, which has a 2.97% dividend yield.
Analog Devices is a best in breed semiconductor manufacturer with a broader industry focus. It is a major supplier of integrated circuits to the communications, industrial, military/aerospace, mobility, and consumer electronics industries.
It has increased annual revenues from $2.6 billion in 2013 to a forecasted $3.3 billion in 2016.
Analog Devices is financially stable with no net debt, will generate almost $1 billion in free cash flow in 2016, and is still considered to be a growth company. It has great long-term prospects.
Editor’s Note: To hear more of Jeff’s insight on which tech companies are set to skyrocket – and which supposedly “safe” ones are poised to collapse – register here for instant access to his free interview series with Amber Lee Mason.
Could Italy Kill the Euro?
The Eurosceptic Five Star Movement is now the most popular political party in Italy. And its leaders want to return the country to the lira… a move that could be fatal for the euro.
How to “Hide” Your Money in a NIRP World
Brexit and negative interest rates are pushing investors into survival mode. Here’s how one digital currencies expert says you can “hide” your money in a NIRP world…
Is Libertarian Gary Johnson Hurting Trump or Clinton?
This year’s presidential election is not a two-horse race. Also in the running is Libertarian Party candidate Gary Johnson… who’s polling at about 11%. But who is Johnson taking most votes from: Trump or Clinton?
After correctly predicting that the Fed would not raise interest rates… and that Britons would vote to leave the EU… currencies expert Jim Rickards made a new prediction about gold.
We continue to get lots of great feedback on tech expert Jeff Brown’s Special Editions of the Diary.
But before we get to that, do you have a personal story to share with Bill and the team about America’s “Parasitocracy”?
Write us at email@example.com.
Now, back to your feedback on Jeff’s essays about self-driving cars and supercomputers…
I’m 80 years of age. With the changes you are forecasting (suggesting?) how on earth will I be able to keep up?
With youngsters developing nonstandard software (remember, we haven’t even managed to get electric plugs to one standard – per country!) how will I/we be able to cope?
I can hardly drive a modern car – yet my old 4×4 still gets me to wherever I want to go. No cabin electronics, no GPS, etc. Time for you youngsters to start thinking about the “baby” (now grey) boomers…?
– Geoff D.
I am astounded and amazed by how fast the Chinese could steal all that technology. Could they have had help?
– Eric B.
Chris comment: Jeff shared his expert advice on the future of the tech industry in a recent interview series with Amber Lee Mason. To hear his thoughts on which iconic companies are likely collapse and which up-and-comers are poised to take off, register now for instant access to his special interview series.