POITOU, FRANCE – In a weekend tweet, the president of the United States of America made a stock market forecast.
He said that prices will go up “dramatically” as he brings his Art of the Deal methods to international trade negotiations.
Never before in the history of the nation has a president – aided, abetted, and advised by thousands of the smartest people on the planet… with almost unlimited research budgets… tracking every detail and recording every conversation – offered stock market forecasts.
Move over, Jim Cramer. And who needs Warren Buffett? And you can forget Ben Graham and Charles Dow, too. If POTUS doesn’t know, who does?
He went to the formerly prestigious Wharton School of Business… and is “like, a really smart person.”
Never before have Americans had such a stark and simple choice.
Right-thinking patriots now know what to do: buy, buy, buy. This sucker is going up! As for the rest of us, we hedge our bets.
But what has been most delicious in the feast of news over the last couple of days is the remarkable optimism… the untethered positivism… the unabashed, can-do spirit of America’s “numero uno.”
Some will say the president is a liar. Others will say he is a fool. What staggers us is his imagination.
On Tuesday, President Trump offered an economic prediction to go with his market forecast. He said that GDP growth was accelerating and “could be in the 5s” for this quarter.
From the Associated Press:
Trump also hailed his own economic and trade policies, saying he is “taking our economy to incredible new heights” in spite of fears of damage from the escalating trade disputes he has provoked.
“You’re gonna see some really super growth,” he promised.
Holy, schmoly. We need sunglasses; we can’t remember the last time so many rosy scenarios all blinded us at the same time.
Better trade deals… Soaring stock prices… Growth over 5% (it has averaged only about 2% for the last 10 years)… Record unemployment with more people working two jobs than ever before…
Even our Doom Index is looking less “doomy.” Our head of research, Joe Withrow, reports:
The Doom Index “cooled” back down to a 6 this quarter – our “soft warning” level. We are still seeing a tale of two worlds in that our financial metrics are flashing warning signs… but our “real” economy metrics remain relatively robust.
We once again saw more corporate bond downgrades than upgrades this quarter… and that’s been the case for 11 of the past 12 quarters. That tells you that serious cracks are forming in the credit markets.
And speaking of U.S. stocks… traditional valuation metrics are still higher than they were in 2007. That hasn’t changed… and, of course, remains a major warning sign.
I attended a talk given by hedge fund manager Mark Yusko in New York last month, and he basically said the same thing we have been saying for a while now: Stock market returns are likely to be awful over the next decade. He thinks we can expect -4% to 0% returns over the next 10 years…
Putting it all together, the Doom Index is issuing a soft warning this quarter. It’s probably not going to be smooth sailing in the stock market… But it doesn’t look like the bottom is about to fall out, either.
But wait, there’s more… Mr. Trump says the national debt is going down, too – thanks to his tariffs.
The New York Times has the story:
President Trump has a new plan for how to pay down the national debt: Taxing American consumers and businesses when they buy certain goods from countries subject to his tariffs. […]
Mr. Trump contended over the weekend that the tariffs his administration has imposed on steel, aluminum and a variety of imported Chinese goods will soon begin to generate sufficient revenue to reduce the federal debt.
And here we see the delightful quality of Donald J. Trump’s imagination. He’s proposing to turn an $800 billion trade deficit into a tariff-fueled fiscal surplus.
Of course, that is never going to happen. But it reveals Mr. Trump as an economic genius… or a hopeless dreamer… or an imbecile. We will deconstruct his weekend tweets; we leave you to decide (emphasis is ours):
Every country on Earth wants to take wealth out of the U.S., always to our detriment. I say, as they come, tax them. If they don’t want to be taxed, let them make or build the product in the U.S. In either event, it means jobs and great wealth.
Because of tariffs we will be able to start paying down large amounts of the $21 trillion in debt that has been accumulated, much by the Obama administration, while at the same time reducing taxes for our people.
The suggestion that countries take wealth out of the U.S. is curious. People trade with each other, and all want to come out ahead. Governments get in the way.
As of today, for example, we are told that we may no longer buy Persian carpets… because Mr. Trump has some grudge against Iran’s government. (We presume he has nothing against its carpet makers.)
But how do the foreigners “take wealth out”?
When Japanese manufacturers send TVs or cars… they do so in exchange for mere electronic notations – aka “dollars.”
Buyers and sellers are presumably happy with the deals or they wouldn’t make them. Who puts in wealth? Who takes it out? How is that to our “detriment”? We don’t know.
Then, the proposed solution: tax imports.
Let’s see, Americans will pay higher prices. Consumers will have fewer options… and less money. Where does the “great wealth” come from?
Proponents of the “genius hypothesis” for Mr. Trump will say that his negotiations will lead to freer trade. But that is not at all what the “tax it or build it here” threat implies. It proposes limiting trade.
And then, there is the claim that these taxes on imports will reduce the federal debt.
Hmm… Here, the president really has let himself run away with his mythomaniac tendencies. The federal debt is not going to be reduced by tariffs. Not even close.
Obama ran big deficits. Trump has caused even bigger ones. If you were to lower the national debt, you’d first have to bring the deficits down to zero.
There’s a trillion-dollar gap that needs to be filled. Total imports in the U.S. are about $2.3 trillion. You’d need to tax the whole kit and caboodle – raising the cost on a vast range of consumer items in America – by about 40%.
Is that going to happen?
Of course not.
Would it help the economy or make Americans wealthier?
Of course not.
What will happen?
We don’t know. And we can hold out hope that Mr. Trump and his fans are right. But our guess: The good news and fantasies will continue until they come to an abrupt stop.
Then, the 5s will become 0s.
By Joe Withrow, Head of Research, Bonner & Partners
Today, a big-picture view of a curious dynamic in U.S. stock trading:
Over the past 25 years, all the gains for the SPDR S&P 500 ETF (SPY) – which tracks the performance of the S&P 500 – have come during after-hours and pre-market trading.
That’s the surprising conclusion of today’s chart, which maps SPY’s gains during after-hours and pre-market trading against gains from regular session trading from 1993 through today.
Standard trading hours for U.S. stocks are between 9:30 a.m. and 4:00 p.m. ET. But thanks to the advent of electronic brokerages, individual traders can now buy and sell securities in “after-hours” or “extended-hours” trading.
As you can see, SPY has gained a cumulative 608% in after-hours and pre-market trading since 1993.
However, if we were to strip out all the after-hours and pre-market gains made by the fund, the cumulative return from regular trading hours would have been a loss of 9.8% over the past 25 years.
In other words, had you bought SPY every morning since 1993, and then sold at the close that same trading day, your cumulative loss would be 9.8% today.
But, had you bought SPY at the close of every trading day since 1993, and then sold it the very next morning before the market opened, your cumulative gain today would be 608%.
This suggests that experienced investors prefer to buy the S&P 500 after the market has closed… and they prefer to sell during regular trading hours.
The key takeaway from this is that daily fluctuations in price are often just “noise.”
As Bill’s ace stock picker Chris Mayer likes to remind readers, to be successful in stock investing, you often must hold for the long haul.
Jumping in and out of positions based on daily price action tends to do more harm than good.
– Joe Withrow
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After a few barbs in Monday’s mailbag, dear readers write in with gratitude for Bill’s dot-connecting…
Dear Mr. Bonner, for me, you have all the lines correctly connecting the dots. I feel privileged to read your column.
– George F.
I appreciate your balanced views on things, and it is especially refreshing to read something that is not either leftist Trump-bashing or naive Trump worship. So thanks for this.
– Bob M.
I think you guys connect the dots pretty well, at least in my opinion. If those who complain did it better, then they wouldn’t be reading what you have to say. Keep up the good work.
– Dennis L.
All the people angry with you, Bill, have not answered a single question of yours! If Hillary or Obama did the same things as Trump, they would be crucifying them. Instead, it’s “God’s chosen” Trump, so they worship him. It’s appalling. I challenge all those who criticized you personally to answer the questions you put forth. If they won’t, they should shut up. Keep connecting the dots and asking the tough questions.
– Beth B.
I’ve got no idea how to connect the dots – try as I might – but I’m looking forward to your mailbag content more and more each day, Bill. People are entitled to their opinions, of course; but with some of the comments, I don’t know whether to laugh or cry. Mostly I laugh, although it can be a close-run thing. Keep up the very good work.
– John S.
I was reading through the mailbag in response to your recent Diary entries. It reminds me of George H. W. Bush’s statement in the run up to the Gulf War: “If you’re not with us, you’re against us,” but morphed into, “If you don’t unquestioningly support Trump, then you must blindly support Hillary.” What puzzles me most is the premise that questioning Trump’s actions seems to be considered unpatriotic and un-American.
Of course his actions may work out (we shall see), but they are indisputably controversial and (based on the 1930s experience) risky. When did people in the land of the free start to consider open discourse to be un-American? Why do people subscribe to your Diary, then complain when you question and challenge in your inimitable style? Who reads your Diary in the expectation of agreeing with everything you write?
– James S.
I see you being savaged by readers and am mystified by their devotion to this incompetent, ethically challenged boob. They seem to be dazzled by his incoherent babble. Our country is circling the drain, exacerbated by his tax cuts and reckless slashing of regulations to pander to the far right-wing wealthy. His actions are not benefiting regular folks.
Cutting protected lands to give away to oil and mining interests only subtracts from our quality of life. Enacting cruel policies toward desperate refugees at the border is short-sighted and appallingly misguided. Axing clean air and water regulations, and cutting fuel standards makes polluters smile as they count their profits, but subtract from all our qualities of life.
If Trump had good intentions, he would be working on building infrastructure, not building useless (and embarrassing) walls. He should be seeking to strengthen our alliances with our traditional trade partners, not pandering to dictators and thugs. He is creating more division among us. I fear he is attempting to bring on armed street battles so he can declare martial law and enact a fearsome agenda that is brewing in his demented mind. Keep up the good work.
– Mary L.
You are correct: You hit a nerve, religious fervor erupted, and I would say those folks are brainwashed. There is no criticism or discourse allowed. I may not agree with you much of the time because I do not believe in most of the conservative principles of the right; but I know that you think for yourself, and I’m interested in what you have to say for that reason. Thanks.
– Sarah W.
Thank you to Mr. Bonner and team for sharing yet another well thought-out, informed, educational, and intelligent feedback. I almost can’t believe he provides this email newsletter completely free of cost in 2018. Every issue must take a minimum of several hours to prepare, and the result must surely be one of the best, most thought-provoking reads on the planet. Every day! For crying out loud, every single day!
Even though Mr. Bonner’s outlook isn’t often the most positive (we understand why), usually, it tends to present balanced, realistic, and more honest reporting – you don’t often find that today. Why? Too much honesty can cost you your business… or maybe generate more (I don’t know).
However, I’m constantly amazed at the viciousness of some readers’ feedback that seems to be included as of late. To be honest, I can’t decide whether these angry, gullible readers are real – if that nonsensical feedback is genuine – or if it’s a clever publicity stunt dreamt up by Bonner & Partners to bolster interest. However, considering what I think I know about human nature… I’m willing to bet that the feedback is all genuine.
Here’s one reader who is incredibly grateful for the shared insights that can be found within Bill Bonner’s Diary, even though I may not want to hear everything that gets shared. Nevertheless, unless I’m reading a great story, I would much rather have truth and reality over myth and fantasy.
– Brian A.
Editor’s Note: The team behind Bill’s Diary is happy to publish feedback from dear readers, both for and against Bill’s ideas. We never publish forged feedback and believe reading and considering differing viewpoints is a healthy exercise in critical thinking.
Do you have any questions for cryptocurrency expert Teeka Tiwari?
If so, you need to submit them soon.
Teeka is hosting a live Q&A tonight at 8 p.m. ET. He’ll answer your questions about cryptocurrencies and where he sees the crypto market going for the rest of 2018. Don’t delay. Submit your questions to Teeka right here.