CAFAYATE, ARGENTINA – The Dow fell about 100 points yesterday.

It’s not hard to see why…

Factory output dropped the most since last August, led by declining auto sales.

Meanwhile, housing starts are at a four-month low. Bank loans are slipping. Commercial property is “rolling over.” Consumers have tapped out. And the Fed’s GDP growth estimates are getting lower and lower.

But the biggest deal is that tax receipts are down, year over year, for the fourth month in a row. Taxes are real money. They’re not fake news like unemployment and inflation statistics.

When people earn less, they pass less in taxes. A decline in tax receipts means that something real is happening in the economy.

The last time tax receipts fell like this was in 2008. You know what happened next.

False Impression

Meanwhile, evidence mounts that – outside of dividends – investing in stocks is rarely profitable.

According to a paper by Hendrik Bessembinder at Arizona State University, even without accounting for fees and expenses, roughly 70% of stocks deliver lower returns than the Treasury bill (considered to be one of the safest assets).

It’s part of the reason why, according to research firm Dalbar, only roughly one-quarter of active fund managers beat their indexes.

Winning stocks are rare.

We have long suspected that fund managers avoid slipping behind the indexes – which they use as benchmarks for their performance – in the simplest possible way: They buy the index!

This – and the fact that the big stocks in the index are the ones covered by the fake-news media (that is… by the popular press) – tends to boost the few popular stocks over the many unknown ones.

This also gives investors a false impression. With the index rising, say, 10% a year, they say: “If I buy ‘stocks,’ they should give me a 10% return.”

But a 2015 paper – “Why Indexing Works” by J.B. Heaton, Nicholas Polson, and Jan Hendrik Witte – revealed that the typical investor does not begin at zero with a 50-50 chance of beating the indexes.

Because most stocks are duds, if you pick stocks randomly, they say, “You are starting below zero.”

Other studies blame investor behavior. The typical investor does worse than the indexes because he trades too often – often buying high and selling low – based on what he reads in the newspapers or watches on TV.

By that stage, it is old news. When something becomes “public knowledge,” it’s generally not worth knowing.

In other words, he doesn’t do the hard work of real investing.

Universal Laws

Remember, there are universal laws at work in the investment world – just as in the rest of the world.

Outside of politics, chicanery, and freelance robbery, with their win-lose deals, the honest world works on win-win deals.

If you want to get… you have to give. And what you get should be proportional (albeit with vast allowances for luck) to what you give.

So you have to ask: How can you expect to earn more money from your investments than other people (more than the indexes)? What more are you giving?

France’s longest-serving president, François Mitterrand, a socialist, was appalled when he realized how investments worked. He replied with indignation that capitalists “make money when they sleep.”

He had a point.

It seems unfair that a working man should have to sell his time by the hour, limited to the number of hours he has available… while the capitalist investor makes money night and day without working at all.

But capital has a value. And it makes sense that the man who lets it out to hire, rather than using it himself, should be paid for it.

In an honest economy, he is paid fairly. The deal is made – like all win-win deals – between buyer and seller, lender and borrower, with no prejudice to one or the other.

Both feel they come out ahead. The man who works the hardest to figure out how he can fructify his money and his time is the one who generally wins the most.

Artificial Levels

But in today’s economy, the fix is in… and has been for more than three decades.

The insiders get money that no one ever earned or saved… and they get it at rates that are pushed down by the heavy hand of the Fed and its fake-money system.

This has created a huge influx of credit-based money that has driven up stock prices – especially the aforementioned indexes.

The Dow, for example, is up 20 times in the last 35 years, while the average working man’s time, adjusted for inflation, is scarcely worth a nickel more.

People look at this and draw the wrong conclusion: “See, stocks always pay off over the long run.” Or as Warren Buffett puts it, “Nobody goes broke betting on the USA.”

But the whole thing is a fraud – with stock prices tricked up by this enormous supply of phony credit.

According to famed bond-fund manager Bill Gross, “All assets are elevated to artificial levels.”

Which is to say that just because stocks have been good for the last 35 years doesn’t mean they will be good for the next 35.

Credit (and its evil twin debt) does not increase forever. And when the next credit crunch comes, as much as $35 trillion of excess debt could disappear in a matter of days.

U.S. stock prices could plunge by 50% to 80%.

Then – surprise, surprise – all the king’s economists… and all the Deep State’s central bankers… may not be able to put this Humpty Dumpty economy back together again.

Regards,

Signature

Bill

 

Technology Insight


By Greg Wilson, Analyst, The Palm Beach Letter


Greg Wilson

World police agency Interpol says that more than 1 million people die each year from counterfeit drugs.

But the real number is much higher. That’s because many cases go unreported.

The global trade in counterfeit drugs is estimated at around $200 billion. It could account for 10% of the global prescription drugs market.

In the U.S. alone, federal agents seized nearly $73 million in counterfeit drugs in 2014. The most likely targets in the U.S. are Americans age 50 and older. They receive about 71% of outpatient prescriptions.

The greatest risk of running into fake drugs comes from phony internet pharmacies that mail drugs directly to consumers. A 2014 report by the Government Accountability Office estimated there are 36,000 of these “rogue” internet pharmacies.

Some of the “rogues” sell drugs that contain dangerous ingredients, including heavy metals, rat poison, and even toxic highway paint. What’s worse, nearly every type of drug on the market is vulnerable to counterfeiting.

But a solution is on the way…

The blockchain is an online ledger. Like any other ledger, the blockchain tracks transactions.

The blockchain was originally created as a secure and efficient way to track cryptocurrencies. But today, we’re seeing blockchain technology applied to other industries – including pharmaceuticals.

Chronicled is a San Francisco-based startup. Last month, it partnered with consultancy firm The LinkLab to create a prescription drug blockchain.

The network will automatically and securely “track and trace” prescription drugs – using “cryptographic” identity chips – from manufacturer to pharmacy to hospital to patient.

According to the firms, the blockchain will provide a less expensive way for drug companies to comply with government regulations on privacy and authenticity.

The project is still in its testing phases, but Chronicled has already raised $6.25 million.

The blockchain bull is just getting started. In the coming years, I expect this technology to not only revolutionize the pharmaceutical industry, but many other industries as well.

Greg Wilson

P.S. Few analysts know more about profiting from cryptocurrencies than my colleague Teeka Tiwari. That’s why he’s hosting a free webinar tomorrow night to show you how to profit from this hidden bull market. You can reserve your spot for this free event right here.

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Mailbag

Today, readers respond to Bill’s decision to invest in Virginia timberland, which he explained in yesterday’s essay, “Where to Put Your Money Now.”

Timberland, eh? Good move, that! And in a region of some prime American hardwoods! Hope you are using a good forester.

– B. Wilkins

I like your investment in timberland. I have seen people growing Black Walnut trees where I used to live outside of Niagara Falls. If you start them in your 20s, by the time you retire, straight and tall trees will be worth quite a bit of money. And if you give them to your kids, they’ll have plenty to spend when they retire. Wish I had realized what was going on when I first saw them. Oh well…

– G. Alvarez

Meanwhile, your feedback on Bill’s stories of cattle roundups on the ranch in Argentina continues to pour in. These in response to last Thursday’s Diary, “Yipping and Yelling.”

The business of providing juicy animal protein and fat for our tables is never a pretty one – as Bills recent narratives partially illustrate. At least Bill’s animals are allowed to roam rather freely, breeding and eating more or less happily, until it comes time to pay the piper.

Most of those who are critical of the processes Bill speaks of will still go to their markets and happily purchase that factory farmed meat with hardly a thought for what those animals have to endure to provide them with their steaks, roasts and burgers.

– C. Burton

Having been raised on a hard scrabble ranch in the Dakotas the stories out of Gualfin really resonate as I’ve “been there, done that.”

As for the people whining about animal mistreatment, ask if they are vegetarians. If NO, tell them to shut up. If YES thank them for their concern and ask what else mankind should be doing to hasten the day when the lamb and the lion will lie down together (and to provide some alternatives for cost effective production of protein.)

– D. Eliason

Man, what I’d give for a chop of the veal from the busted calf. Great Read!

– K. Lindheim

I always herded my cows on foot. I was on one side of the herd and the dog was on the other. We moved the cows the old-fashioned way men used before horses and macho became the vogue. By using a cow’s natural instinct to veer away from a presence near their head, flank, or hind end you can drive cattle pretty much anywhere you want.

– W. Costello

You should have come along about a 150 years ago and you could have participated in the cattle drives over the Texas Goodnight-Loving Trail in 1866 and others. Maybe you lived as a “wandering cowboy” in a past life, during the days of Texas cattle drives and your soul has now come back to earth again.

But, this time around, as a “wandering publisher,” with an innate desire to live it all over again on a ranch in Argentina. Something besides acquiring your own agrarian sanctuary is driving you to continue searching for satisfaction on your current journey in a desolate high country. It’s something more than money!

– D. Crumbley