PARIS – We live in an Era of Busted Dreams (EBD). Yesterday, we looked at one of them – the banged-up hope that Donald J. Trump might turn things around.
It seems more and more unlikely.
First, because he doesn’t know what is going on. Second, because he doesn’t really want to change it (it made him rich… and POTUS).
Third, because he couldn’t change it anyway (the Deep State decides the important issues).
And fourth, because that’s not the way dreams bust; they need to be more than dented… they need to be completely crushed… and ground to powder… before the rebuilding can begin.
Fiends and Malingerers
This morning, more dents appeared. Republicans and Democrats reportedly agreed to let Mr. Trump build a few more miles of wall, leaving approximately 1,400 miles of border with neither wall nor fence.
If it is true that there are hordes of fiends and malingerers trying to get across the border, they will still be able to.
If it is not true, The Wall is just a waste of money. (There was no wall in the 1950s… when, arguably, America really was great. What is different? There was no war against drugs or widespread welfare system, either.)
But the EBD didn’t just happen. As we explored last week, among our most ancient and powerful instincts is the “us versus them” impulse. Always challenged… under threat… menaced and harassed, we learned to stand shoulder to shoulder with the “us” against “them”… and build walls to keep them out. That is how we survived.
But the simple “us vs. them” analysis doesn’t really explain how we got where we are. And it won’t help us understand what is coming up next.
Over the last half century, the sinister trends – more debt, more wars, more centralized power – continued, through both Republican and Democratic administrations. Sometimes slower, sometimes faster… but nobody from either party put on the brakes, or much less turned around.
Not once was the federal budget genuinely balanced. The insiders gathered up more clout and cash. The elite became bolder, richer, and sassier… and the average citizen became weaker, more cowed, and more dependent.
“We are born free, and we will stay free,” said Mr. Trump in his SOTUS. But that is a busted dream too.
Americans are now among the most heavily policed people in the advanced world. There were three federal crimes in 1789; there are more than 4,000 today.
With so many laws, it is no wonder that so many break them. The U.S. has the largest prison population in the world – with 10 million picked up by its gendarmes annually and more than 2.2 million in its gulags (5 times as many as in 1970) – half of them for a made-up crime, involving marijuana.
Its government agents – using “civil forfeiture” rules – steal more wealth than common thieves.
Its armed troops garrison close to 800 foreign outposts and, in the last half century, are responsible for more deaths than Russia, Iran, North Korea… and the whole “Axis of Evil” put together. Barack Obama, like Stalin, personally approved each day’s assassination list.
And rather than rise up against their whip-masters, Americans say “thank you” to the TSA for rifling through their underwear!
That is the real state of the Union and perhaps the biggest busted dream of all: The American Dream has become an aging, heavily indebted empire struggling to hold onto its place in the world, led by a corrupt elite whose only real goal is to keep the juice flowing – to themselves.
And like every degenerate empire before it, this one is doomed to a financial collapse. And since our usual beat is money, we turn our attention now to the monumental crisis that is coming.
Bring the Punchbowl
The dream was that smart people with Ph.D.’s in finance and economics could do a better job of guiding the economy than market forces.
Led by Milton Friedman, in 1971, they changed the money itself – removing the constraint of gold so they could manipulate the currency more directly.
Then, they began using “counter-cyclical monetary policy” to offset the market’s moods. It was William McChesney Martin, the longest-serving Fed Chair in history, that said it was his job to “take away the punchbowl just as the party gets going.” In other words, tighten up the money before things got out of hand.
All too human, the nation’s money custodians proved to be very good at bringing out the punchbowl; they were very bad at taking it away.
Then, in 1987, Alan Greenspan, then Fed chief, went further. He let it be known that he’d come in with as much alcohol as necessary to keep the party going. The excitement increased… louder and louder… wilder and wilder… until 1999, when someone must have called the cops.
But the crash of the dot-coms put only a temporary damper on the fun. In came the feds with more cases of Jack Daniel’s… and it was “Party On!”… until 2007.
This time, the problem was serious. Homeowners couldn’t keep up with their mortgage payments. And this time, the feds came not just with more liquor… but hard drugs, too.
Quantitative easing, QE, they called it. Thus, did they not just make EZ credit EZ-er, but added some $3.6 trillion in new money, too. It was an emergency, they said, promising to “normalize” later.
And of course, now it is 10 years later.
And now, the Fed says it won’t be normalizing any time soon. This is the new dream that is coming into focus… that deficits don’t matter… that debt can increase indefinitely… and that the feds can simply add money whenever the going gets rough.
Republicans and Democrats will both go along with it. “Us” and “Them” will come together to protect the flimflam they both benefit from.
Borrow! Spend! Print! Do “whatever it takes.” Damn the deficits!
And then The Wall will make more sense – as a shovel-ready public works project!
But that is when the going really begins to get rough… and millions of private dreams are busted too.
More to come…
TRADING INSIGHT: YOUR LAST CHANCE TO GET OUT
Editor’s Note: Master trader Jeff Clark looks at the stock market a little differently than Bill. Jeff’s a short-term trader. He likes to make money on stocks in weeks, not years. But both men agree on one important point: A bear market is coming. Today, Jeff shows you why now might be your best chance to pull the ripcord… before the bear finally attacks.
By Jeff Clark, Editor, Delta Report
There is no such thing as a stealth bear attack.
Grizzlies are not sneaky animals.
In the wild, bear attacks happen because people either missed the warning signs, or they ignored them. And, folks didn’t know what to do once the attack began.
The same is true for bear attacks in the stock market.
If you were paying attention back in 2000 and 2007, then you could have avoided the mauling that most folks suffered in the ensuing bear markets. Heck, you could have even profited from them.
Those bear markets didn’t appear from out of nowhere. There were plenty of warning signs. And the bear almost always gives you a chance to get away.
The rally we’ve seen over the past few weeks may just be your last chance to get out before the bear attacks. Let me explain…
Take a look at this long-term, monthly chart of the S&P 500, plotted against its 20-month exponential moving average (EMA)…
Longtime readers know I use this chart to define bull and bear markets. If the S&P is trading above the 20-month EMA, then stocks are in a bull market. If the index is trading below the line, then the bear is in charge.
The MACD indicator at the bottom of the chart provides one of the early warning signs of a bear market.
Without getting too complicated, if the black MACD line is trading above the red line, then stocks are in bull mode. When the black line crosses below the red line, then traders need to be on the lookout for the bear.
Notice how in 2000 and in 2007, the MACD indicator gave us that “bearish cross” from extremely overbought conditions. In both cases, the S&P 500 dropped below its 20-month EMA a few months later.
Of course, you’ll notice the S&P dropped below its 20-month EMA in 2010 and in 2011. But, in both of those situations, the MACD was more neutral than overbought. We didn’t get a bearish cross on the MACD in 2010. And in 2011, the bearish cross reversed just one month later.
So, we didn’t have the conditions necessary for a bear market.
We did, however, get a MACD “bearish cross” last September. The S&P 500 peaked that same month. And we entered a bear market when the S&P 500 closed below its 20-month EMA in December.
But, as I wrote earlier, the bear almost always gives you a chance to get away.
Look at the red circles on the chart in 2001 and 2008. The S&P 500 breached its 20-month EMA. Then it rallied back up to “kiss” the line from below.
Those were remarkably strong rallies. Stocks bounced off of extremely oversold levels – crushing anyone who got too aggressive with short sales (and there were plenty of folks who made that mistake), and getting folks thinking that maybe the bull market was back.
That’s when the bear attacked.
Now take a look at the recent action on the chart.
The S&P 500 dropped below its 20-month EMA in December. Stocks were extremely oversold. And, as I’ve been warning my readers, the market was setting up for an oversold bounce.
We got that bounce.
The S&P 500 rallied 300 points in January. It’s 370 points higher than its December low of 2332. Folks who got too aggressive with short sales in December are feeling the pain of a short squeeze. And, many of the financial television talking heads are proclaiming the correction is over and we’re back in a bull market.
The talking heads are ignoring the warning signs of a bear attack. What’s worse is they’re telling you to ignore them, too.
Granted, the S&P 500 did end January above its 20-month EMA. So, if we’re applying strict mathematical and scientific rules to this analysis, then we have to consider that the bear market is over and a new bull market has begun.
That’s possible, of course. But, in order to believe that, we have to believe the longest bull market in history was just followed by the shortest bear market in history. That just doesn’t seem likely.
Remember, technical analysis is more of an art than a science. We’re dealing with human emotions – which are remarkably consistent but are prone to overshoot at extreme levels. So, we have to give this chart a little wiggle room.
Given that the black line on the MACD indicator is nowhere near crossing over the red line, I’d say the best action the bulls can hope for at this point is something similar to the 2015-2016 correction. You can see how the S&P chopped above and below its 20-month EMA a couple of times before the MACD indicator turned higher.
In other words, the best the bulls can hope for here is a several-month period of choppy, back and forth action near current levels. The worst they could see is a devastating bear market similar to what happened in 2001 and 2008.
For most folks, this is probably a good time to remember the old joke about two hunters who stumble across a grizzly bear in the woods.
One hunter stops, takes off his boots, takes his running shoes out of his backpack, and starts lacing them up on his feet.
The second hunter looks at the first hunter and says, “What the heck are you doing? You’ll never outrun that bear.”
The first hunter replies, “I don’t need to outrun the bear. I only need to outrun you.”
Be like the first hunter.
– Jeff Clark
P.S. No matter how bad the market gets, know this: You don’t have to be a victim.
A lot of folks lost everything in 2008. It was one of the biggest stock market crashes in modern history.
But there’s something you likely didn’t know about 2008. A certain group of people made out like bandits. Click here to see how you can too.
Jay Brings Out the Punchbowl
As Bill wrote above, recent Fed chairs have had a hard time “taking away the punchbowl.” Instead, when the going gets tough, they spike it with grain alcohol. With the Fed’s recent decision to halt rate hikes, it appears that Jay Powell will continue in that grand tradition.
For Sale: Your Location
The cell phone in your pocket is constantly transmitting your location to nearby cell towers. Most users are okay with this. After all, only your wireless company has access to that data. And they’d never disclose it… right?
The Real Reason the Government Wants You to Drive an Electric Car
Electric cars are the future. Just ask the government! The U.S. has spent billions trying to convince Americans to drive electric. The official reason: To protect the environment and boost economic development. And that’s true… sorta.
Bill has been tough on POTUS the last few weeks. But is our editor just envious of President Trump? In the mailbag, at least one dear reader thinks so…
I’m beginning to connect the dots. It seems you have a massive envy issue with Trump, a man who has more money than you, a man who has achieved more than you (he’s president), and who has more followers on his twitter account than you.
It is pretty obvious that you sit at home in a darkened room brooding about the unfairness of it all when you are so much more talented and smarter than he is. You’re stewing in your self-made crock pot.
– Ron S.
So, Bill… You have no faith in President Trump or his desire to make the country greater. Well, I could not possibly disagree with you more. I completely detest what Barack Obama, Bernie Sanders, and AOC have done and are trying to do to this country with their “dark state” opposition.
I believe that Trump has done a terrific job in his first two years and is not obligated to any lobby. More importantly, I believe the man is trying to do the right thing. Since I sincerely believe you are wrong about Trump, I also don’t have faith in your stock advice.Therefore, I am unsubscribing from your service immediately.
– William H.
Exploring the future isn’t easy, but you make it interesting. Unless you’re Nostradamus, though, I don’t know how much credence your words deserve. I think you’re a little tough on Trump, though, because no one, besides God, can change the course this nation is on. We’re bound to experience a downturn one of these days, as a matter of course, and it could be serious, and if AOC gets her way, it could really be serious.
You need to tell us what to do. Do we go to cash, buy more guns and ammunition, buy gold and bury it where no one can find it? Maybe move to Argentina and sponge off of you? I like the idea of moving to Argentina the best. Do you provide a limousine service from the airport?
Editor’s Note: How to prepare for the next downturn? Bill and his right-hand man, Dan Denning, have been exploring that topic in the pages of The Bill Bonner Letter. Subscribers can catch up here, here, and here. Bill and Dan will show readers how to preserve their wealth, privacy, and liberty in the years ahead… without having to fly to Argentina.
IN CASE YOU MISSED IT…
As Bill said, the United States is on a terminal path: more debt, more deficits, and collapse…
But before that happens, this will…