When you want to help people, you tell them the truth. When you want to help yourself, you tell them what they want to hear.

– Thomas Sowell

bill bonner

RANCHO SANTANA, NICARAGUA – When we first arrived here in Rancho Santana on Nicaragua’s Pacific coast, we smelled smoke.

Across the valley, it looked at first like a morning mist rising between the hills. But last night, we looked out from our bedroom and saw what was happening. A brush fire was arcing its way up the mountain to the south of us.

It’s the dry season. The ground is covered with dried-up leaves and grass. A gusty wind blows from the east, often knocking over the chairs on the porch.

Our subject for today and tomorrow is truth.

We begin with an observation: There’s a world of difference between a brush fire and an economic policy.

Hammer and Tongs

The truth that many people long to hear is that Donald J. Trump is sweating over the Deep State with a hammer and tongs. They want to see him pound it… bend it… break it apart… and put it back together again.

Then, pointing to record-high stock prices, they say: “See… he must be doing a good job.”

But this is not a brush fire…

A fire is real. It can scorch your fingers or burn down your house. “News” in the public space is something else. It is like a presidential tweet or an argument between halfwits: There may be some truth involved, but it can be almost impossible to find.

So far, there is no sign of either hammer or tongs in the Trump program.

Yesterday, for example, the GOP-controlled Congress came out with its much-anticipated medical plan.

A quick reading suggests it will be an improvement (slightly fewer win-lose deals). But it won’t significantly change the flow of funds to the crony medical-insurance-ambulance-chasing industry.

And that is probably what the stock market likes.

In other words, investors are not disappointed with “The Donald.” He hasn’t hammered the insiders or substantially threatened the Deep State; they’re glad he didn’t.

The markets know that squabbles with Arnold Schwarzenegger, Barack Obama, or the FBI don’t matter. What matters is this administration having investors’ backs.  

The style is different; the substance is the same.

And the fake-money system – guarded by a phalanx of ex-Goldman guys – is safe.

End of ZIRP

Today marks the beginning of the ninth year of “recovery” from the crisis of 2008-09.

Interest rates have been at emergency lows – near zero – the entire time, even as the stock market added $21 trillion of paper wealth.

That’s how much stock prices have gone up.

But now, word on the street is that ZIRP (zero-interest-rate policy) is coming to an end. And Bank of America Merrill Lynch is telling the Trump team to limber up.

First, the president of the powerful New York Fed, William Dudley, told the press that the market’s “animal spirits have been unleashed.”

And citing “sturdy” jobs gains, inflation increases, and rising optimism for both consumers and business owners, he also said that “the case for monetary policy tightening has become a lot more compelling.”

Hence, Dudley and the Fed may increase the price of credit at the next Fed policy-setting meeting later this month. Bloomberg puts the odds of a Fed rate hike at 90%.

In other words, unless the stock market crashes before March 15, it’s highly likely the Fed will raise the federal funds rate.

Crash Alert

Meanwhile, Bank of America Merrill Lynch is telling investors to watch out for a big crash in the second half of the year.

Corporate earnings are falling. And if the Fed’s rate-hiking program gets underway in earnest… it will continue until a financial crisis shows up (i.e., a crash).

Then, the Trump administration will come upon the can that the last three administrations kicked down the road. And when it does, it will do what they did: Give it a whack.

Will that happen? Time will tell.

More to come…




P.S. The fire burned all night, up one side of the mountain and down the other side (which we couldn’t see). It must have burnt up several thousand acres. We saw no efforts to contain it. And as far as we know, there are no houses on that mountain.

This morning, we still see isolated pockets of fire, but not the blaze of last night.

Between the conflagration and us is a flat valley full of tinder… and two small rivers. The rivers are dry this time of year and full of dry leaves. And they are so small that tree branches from each side meet overhead.

What would have happened if the wind had shifted in our direction? We don’t know.

P.P.S. Yesterday, our team back in Delray Beach, Florida, made a small error. They mistakenly called the resident cantante here at Rancho Santana Jorgelito. His name is Joselito.


Market Insight


Chris Lowe

Stocks aren’t the only thing making investors money since Election Day.

The world’s most popular cryptocurrency, bitcoin, is also on a tear.

The best way to think of bitcoin is as a private online currency.

The supply of new bitcoins is governed by a computer algorithm, meaning central banks can’t create them on a whim.

Banks can’t create new bitcoins, either. All transactions are done “peer to peer” – so there’s no middleman.

In fact, the rules that govern the bitcoin network won’t ever allow more than 21 million bitcoins to be created.

So, unlike the dollar, the euro, or the yen, bitcoin is inflation-proof. Its value can’t be “printed away.”

As you can see from today’s chart, one bitcoin sold for $712 on Election Day. Today, it sells for $1,232 – a 73% increase.

That compares to an 11% gain for the S&P 500.

Chris Lowe

P.S. Bitcoin was the best-performing currency last year – rising a stunning 120%. And colleague Teeka Tiwari at Palm Beach Research Group believes 2017 is going to be an even bigger year not just for bitcoin… but for many other cryptos, too.

In the next few days, we’ll be releasing details of Teeka’s new presentation on how you can profit from the explosive gains in cryptocurrencies. So keep an eye out for it.

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It’s a mixed mailbag today. But the focus continues to be on the 45th president of the United States, Donald J. Trump.

I am a retired U.S. Airforce lieutenant colonel who volunteered for more missions over North Viet Nam than anyone else in our Squadron. I have flown supersonic many times. I liked much of Trump’s latest speech. But his build-up of the military is horrible.

The U.S. now has the No. 1 and No. 2 aircrafts in the world, and Trump wants to build a better, much more expensive one? To me, that is grossly wasteful. In my view, we do not need any more aircraft carriers that cost billions of dollars. Rockets that cost much less can destroy them, so they are now not cost-effective. In our bombing raids in the Mid-East, we are using million-dollar planes to do what a $250,000 plane could do better.

Do not ask the generals what they want. They want to get promoted. And they strongly want the most expensive equipment under their command to get promoted.

– Carl T.

Why do [you] always feel the sky is falling? The earth has been around for a billion years. Whatever we do it will heal itself. Life is short try to relax!! All your negative thoughts are not good for your longevity.

– Neal B.

The people who you see you as negative obviously cannot see the big structure of how things work. It snows and you shovel it. It snows again and you shovel more.

– Rebecca H.

You say: “Trump’s tax plan is supposed to be ‘revenue neutral’… meaning it won’t blow out the deficit. But shifting tax burdens from one group to another (taxing some less and others more) takes time… invites uncertainty… and leaves the economy with the same net spending power.”

This is only a (large) part of the story. The economy loses much wealth, as the transfers add distortions and friction. The final net spending power is diminished.

– Martin C.

You have a new follower. Today I heard Rush Limbaugh explain to his listeners how he defined the “Deep State”! Sorry for all the grief you are taking about Trump. Some people still believe POTUS, “Puppet of the United States,” actually matters.

– Rick W.