BALTIMORE – The Donald goes to “The Wall” and the debate goes on. POTUS visited America’s southern border towns, trying to drum up support for his long-promised border wall.

Meanwhile, as we saw yesterday, so far, we’re losing ground financially. The country is at least $1.2 trillion poorer today than it was in 2016.

But money isn’t everything. Maybe there are other things – like border security – that are more important.

Stop Digging

Our job here is to connect the dots. To many readers, that means separating Heaven from Hell… good from evil… “us” from “them.”

But that is far beyond our ken. We only try to laugh from time to time… and at the right thing. And since money is the source of so much of our mirth, we won’t give it up here.

Lately, we’ve been pointing to a deep hole – a $21 trillion hole of debt.

When you’ve dug yourself into a hole, the first thing to do is to stop digging. No American president in 50 years has been able to do that.

They dig for foreign wars and domestic boondoggles. Over that half-century, they probably spent $50 trillion. But we would be hard-pressed to name one single thing… one real achievement… that wasn’t a scam or a failure.

And the hole just gets deeper and deeper. Trump, Obama, Bush – all of them just kept shoveling. And with so much dirt flying, we hardly noticed “The Wall.” But what projects could be more important than securing America’s southern flank?

We don’t know, but this year, Congress found $4.4 trillion worth of them. That’s what the feds will spend, even without the wall. Of course, the feds don’t have $4.4 trillion. They only expect $3.4 trillion in revenues. So nearly $1 trillion will be borrowed.

What kind of way is this to run a government? Instead of figuring out a reasonable budget – with or without a wall – the feds are arguing about spending $5.7 trillion more.

But today, with malice towards none… and charity for all… let’s spare a thought for border security.

Southern Flank

Walls are built to keep “them” out… or in. The walls of Jericho, Athens’ “Long Walls,” the Berlin Wall – all served a purpose.

Hadrian built a wall across Britain to secure the border along the River Tyne. Twenty years later, the Romans pushed the frontier up to the Firth of Forth and built the Antonine Wall. The Great Wall of China was built to keep out the Steppes’ barbarians.

All are now tourist attractions.

Why not another one?

Money, as we’ve been saying, is more than “just money.” It’s a way of keeping score and staying honest. When we spend money, we make choices. We accept trade-offs, taking real time and resources that could have been used elsewhere. And we have to ask – is it worth it?

On the evidence available to us, the case for a border wall is mixed, inconclusive… with heavy contributions of malarkey.

The first immigrants to America faced a harrowing journey, threats from hostile natives, hunger, and thirst. Most of them came without papers. For good or bad, they came and made the best of it.

The closest parallel today is illegal immigration. At least these immigrants have gumption. They brave such hardship, detention, and danger that Mr. Trump says it is a “humanitarian crisis.”

And why do they do it?

Mostly for a chance to do the miserable work as is available to an undocumented laborer – in factories, fields, and furnaces – where they earn such a pittance that the native-born don’t want to do it.

But are they a danger to the rest of us? Are these mañana-loving foreigners caving in our health and retirement plans… or rescuing them? Are they raising our crime rates, or lowering them?

And let us pose a question to you, Dear Reader.

You are in Baltimore, parking your car late at night in a deserted lot. Which would you rather see approaching? Three illegal immigrants getting off their late shift at Five Guys?

Or three home-grown, locally raised, 100% Americanos?

Rampage of Crime

In our very limited experience, the illegals are polite, hard-working, and self-reliant. They don’t get into trouble with the law; they don’t sue anyone; they don’t angle for welfare benefits or riot – because they’re afraid of being deported!

But wait! Some of our dearest readers are dead sure that illegal immigration is ruining the country and that the border with Mexico is teeming with terrorist hordes… murderers… rapists… and hellish fiends – all waiting to cross the Rio Grande and go on a rampage of crime.

Is it true? Would we be safer, richer, better off with a wall to keep them out? What does the evidence tell us?

As usual, both sides of the argument find the evidence they’re looking for. Those concerned about protecting social security and medical benefits say immigrants, legal or illegal, are a definite plus. They’re young. They have children. They pay in. And it will be years before they join the zombie rolls.

But is it worth it? What about the crime? The first thing we notice is that Mexico’s murder rate is nearly four times that of the U.S. There are a lot of bad hombres way down in Pancho Villa land.

But wait… we’d still be safer in Mexico than we are here in Baltimore; the murder rate here is more than twice as high as it is down there.

According to press reports, most of Mexico’s murder problem is linked to the drug trade – just as it is here. (We suspect that ending the drug war would eliminate most of the violence on both sides of the Rio Grande…)

But here’s something interesting: If murderers were spilling over the border, you’d expect the murder rate to go up in the counties nearest the Rio Grande. Instead, they have much lower murder rates. McAllen, where The Donald went yesterday, claims the lowest crime figures in Texas. Go figure.

Illegal Saints

And here’s something else: Donald Trump told us that U.S. Immigration and Customs Enforcement (ICE) had picked up hundreds of thousands of illegals with criminal records.

But the Border Patrol tells us that the illegals they’ve nabbed actually have a lower crime rate than the general U.S. population. Fewer than 2% of them have criminal records.

In the U.S., 30% of adults have been charged (though not necessarily convicted) of a crime. In comparison with the natives, the illegals are saints.

But what about the hordes of immigrants ready to crash through our borders, like the Huns sweeping over Europe?

The border garrisons tell us that unauthorized immigration has been going down for the last 18 years and is now nearly 80% below its peak in 2000.

And what about terrorism? There, too, the illegal immigrants are models of probity.

The feds refer to foreigners from “high-risk” countries such as Syria or Iraq as “special interest aliens.” Guess how many of these people entered the U.S. illegally across the border with Mexico and murdered or injured Americans over the last 42 years… Zero.

The only incident where the alleged terrorist crossed a border illegally involved a guy who came from Canada! The others all had passports and visas… one stowed away on a ship.

So what exactly is the emergency? We don’t know. But if it were so important, you’d think the people’s representatives could easily cut out enough boondoggles to pay for it.

Otherwise, they are leaving the next generation with not just a 2,000-mile scar, visible from space… but with the bill for it, too.

Regards,

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Bill

MARKET INSIGHT: SMALL-CAPS GET HAMMERED

By Thompson Clark, Editor, Bonner & Partners’ Focus

Editor’s Note: Today, we introduce Diary readers to a new name. Thompson Clark heads up Bonner & Partners’ Focus, an investment service dedicated to disciplined fundamental analysis.

Below, Thompson shows why investing blindly in “the stock market” can be a risky proposition, and reveals why he invests in companies, not markets…


The fourth quarter of 2018 was the worst quarter for small-cap stocks since 2008…

This comes from an excellent research note by The Royce Funds. Between September 1 and December 31, 2018, 89% of small-cap stocks in the Russell 2000 were down. The Russell 2000, as a reminder, is an index that tracks 2000 small-cap companies.

Compare that to 2008, when 87% of small-cap stocks were down in the fourth quarter.

Let me repeat that. The percentage of companies in the Russell that closed in the red in Q4 2018 was worse than in Q4 2008. All told, the Russell ended 2018 down 12.2%.

As Bill has written in these pages for a long time, there’s a lot of froth out there. A lot of speculation. Nowhere is that point more obvious than in the Russell 2000 small-cap index.

From our math, 8% of companies in the Russell 2000 have under $10 million in revenue.

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And 30% of companies in the index have negative operating earnings – measured by earnings before interest and taxes (EBIT). They’re losing money.

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Blindly buying the index might have worked well enough for the last few years. Index investors say to themselves, often with religious fervor, “8%! 8%! 8%!” That is, they should earn 8% annually over time by investing in the index.

But look back at the Russell’s performance these last five years. It’s only averaged a little more than 4% growth annually. And this was during one of the strongest bull markets in history. Is passive investing really as good as advertised?

I say no. Blindly buying a basket of companies with no regard for price or fundamental value is not investing. It’s speculating.

That’s why I prefer to look at individual companies. Today, I’m finding growing companies with revenue and positive cashflow run by smart, savvy, and aligned insiders.

Our view: Buy and invest in individual companies. Sell and avoid the index.

Thompson Clark

FEATURED READS

Why do Expansions Die?
The current economic expansion is one of the largest in history. It’s been 115 months and counting with no recession. This has some experts worried. What could end this current expansion? Will it die of old age? Or will it be murdered?

The Moment of Truth
The next few weeks could determine if the bull market stages a comeback… or if the bear finally takes hold. Companies will begin reporting fourth-quarter earnings. And after the worst year for stocks in decades, investors are praying for good news…

And read also

How to Survive the Bear
Bill sees tough times ahead for U.S. stocks. Investors could be sitting on losses for years. If our editor is right, nobody will be able to fully escape the bear market. But a proper asset allocation strategy can save you from the worst of it…

MAILBAG

In the mailbag, dear readers wonder: Is Trump trapped?

If Trump is trapped, which sounds about right to me, how might that affect his reelection bid? And on a related note, will the other side (a stretch) put up someone who can (will) win, or will they set the Don up for another term since he has proven himself willing to go along with the Deep State policies? I know you don’t have a crystal ball, but if you project another year of the status quo, you should have a pretty good idea of what will happen in the next election.

– Ken H.

Your comments about President Trump are not much appreciated at this end. I’d like you to put yourself in his position and then make your comments. To me, you’re a little too much on the jaded side in your comments about our president. He’s not perfect, but he’s far better than the unnamed one that lost, and her party, which isn’t the party it used to be. It’s commie now. I’m not of any party, just an American.

– Gerald K.

Meanwhile, debate continues to swirl around America’s youngest congressional representative. Is Alexandria Ocasio-Cortez dangerous for the country? Or a breath of fresh air?

This article has me laughing out loud! But in all honesty, we already have a fair system, and we need to fix our financial loopholes instead of draining more money to put on programs that are costly. Ms. Ocasio-Cortez has no background experience and knowledge of how this works. Leave it to the professionals, please. It’s all just talk!

– Karishma S.

Just a comment on Congresswoman Ocasio-Cortez, or AOC as she has become known. I am a 74-year-old retired business owner and FORMER Republican, and I think AOC is great! She is just the right thing to shake up the old, white morons we have in Congress. She is very smart, even though all the white conservatives like to project her as stupid. Bill says the rich will begin to “squeak” when these programs begin – it looks like he has already begun to “squeak,” and nothing has changed.

– Bob E.

As a waitress, you need an arm to hold the plates and a lot of good humor. As a U.S. congressperson, all that is needed is to promise the constituency, “Elect me and I will get you everything for FREE. I will take it from the rich!”

– Bern K.

The new congresswoman is the media’s new darling – photogenic and controversy-free. Many fear that sadly, she is the face of socialism that will gain traction, as you point out, in the coming decline. Her ilk will cause chaos while undermining our country’s greatness. All hail Ms. Ocasio-Cortez. Dangerous indeed…

– Michael C.

Ms. Ocasio-Cortez is a breath of fresh air to clear out some of the smell Trump has generated. How can you continue to support the trickle-down theory of Laffer and others? Reagan and Bush (I and II) tried and ran up record deficits. Of course, they all ended up saying deficits don’t matter. Wrong! Clinton is the only one in recent times who paid down the national debt with surpluses for four years. Clinton said it’s just 4th grade arithmetic and the Laffer curve is a laugh. Clinton is/was right.

– Paul L.

IN CASE YOU MISSED IT…

Self-driving cars… augmented reality… artificial intelligence… Jeff Brown, Bill’s top tech expert, says all these technologies will be here in just a few years. But they all depend on the creation of one piece of tech.

See what it is right here, and learn why smart investors could make 10 times their money in the years ahead.

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