It is worse than “voodoo economics,” says former Treasury Secretary Larry Summers. It is the “economic equivalent of creationism.”

Wait a minute…

Larry Summers is wrong about almost everything. Could he be right about this?

“Trade Cheaters”

Summers is referring to the paper written by two members of Trump’s trade team: his pick for secretary of commerce, billionaire investor Wilbur Ross, and the director of Trump’s new National Trade Council, Ph.D. economist Peter Navarro.

It calls for a turn away from free trade and toward managed trade – or what is vaguely described as “fair” trade.

Colleague Karim Rahemtulla, on an investment scouting trip in India and China, sends this note:

I met with a factory owner in China. He pays his workers 2,000 renminbi a month, about US$300. He thinks it’s too expensive and is now opening factories in Vietnam and Cambodia, where he can pay half of what he’s paying just outside Shanghai.

In India, I saw two ads in the newspaper. One was for call center workers with a college degree as a requirement. The pay range was between 9,000 rupees (US$132) and 15,000 rupees (US$220) a month. The other ad was for a chartered accountant with three years’ experience for the Nehru Foundation – a big Indian NGO. The pay for that was 29,000 rupees per month, about US$426.

What kind of “fairness” is it that denies a job to a man in Calcutta to pay a man in San Jose 10 times as much for the same work?

Less than US$200 a month for a job in an Indian call center.
(Source: Karim Rahemtulla)

Ross and Navarro call China a “trade cheater.”

Imagine a town with a bar on every corner. One of these gin joints gets an idea of how to increase his customer base: Offer free drinks!

There’s a “cheater” for sure… and a moral conundrum for a nitwit.

What should a serious drinker do?

Turn up his nose… turn away his face… and take his business to another place in the name of fairness?

Laughing, Crying, Learning

But it is not fairness that interests us today; it is a worldwide depression, to which we will return in a minute.

First, we would like to thank our dear readers.

There is no obvious benefit to reading our Diary. We give no stock tips. Our market-timing advice is, let us say, imperfect.

As for our insights on the rest of life… well, we only hope they are worth what you pay for them.

Thanks also to the many readers who write in to the Diary mailbag [see below] with their comments.

We read every one of them. Often surprised… often touched… sometimes alarmed – we laugh, we cry, we learn… and consider retirement.

Now, back to our story…

Bad Engineers

If the new Trump administration follows the advice laid out in the Ross-Navarro plan, it will almost certainly lead to disaster.

Of course, there will probably be a disaster anyway. But as it is, you can’t fault the hotel mogul, reality TV star, and president-elect. He didn’t build this railroad; it won’t be his doing when it goes off the rails.

But Ross and Navarro are bad engineers… They’re twisting the tracks!

Specifically, they’re advising the new administration to abandon free trade in favor of crony trade – deals designed to reward or punish certain industries or countries depending on which direction the political winds and lobbyists’ money are blowing.

As far as we know, all human economic progress has been made by a combination of technological advances, specialization, and an elaboration of the division of labor made possible by property rights, honest money, and free-market capitalism.

Anything that stands in the way of these things – for instance, crony trade deals – reduces output, wealth, and choice.

But alert readers are right: Just as free immigration can be incompatible with a zombie welfare system (it attracts immigrants who become parasites)… free trade can cause problems in a fake financial system (it causes imbalances that threaten the world economy).

Out of Hand

An honest money system has feedback loops that keep things from getting out of hand.

Under the Bretton Woods system, for instance, a nation that imported more than it exported soon found its gold reserves – and therefore its money supply – shrinking. A recession was sure to follow.

But the post-1971 fake money system has no such natural limits.

Americans bought products from overseas with the feds’ fake dollars. Foreigners – particularly the Chinese – took these dollars and used them to build out their economies… and compete with U.S. manufacturers to provide cheap products for credit-fueled U.S. consumers.

As we reported yesterday, America’s trade deficit with China (the dollar value of imports we buy from China unmatched by exports to China) now runs at $1 billion a day.

And since 1980, when trade with the Middle Kingdom really got going, we have accumulated a trade deficit of about $10 trillion with China.

That is the money that built the factories that now undercut American manufacturers… that created a $225 trillion pile of global dry debt… and that corrupted and corroded the whole world’s financial system.

Still, we wonder if Ross and Navarro really know what they are doing.

They say they aim to reduce America’s trade deficit. That is to say they want the U.S. to export more and import less… thus keeping more dollars at home.

Do they realize that our whole world economy is built on fake money, giant U.S. trade imbalances, and a mountain of debt?

Take away the trade imbalances and the whole system collapses.

The fake dollars go overseas… then come back home and buy U.S. Treasurys, lowering yields. (In the bond market, yields move “inversely” to prices.)

If the fake money stays home, Treasury yields – and the government’s borrowing costs – go up… and the whole shebang comes down. Interest rates rise. Stocks fall. The economy goes into recession… and probably depression. China is devastated. And jobs disappear everywhere… in Mexico, China… and the U.S. Is that what they really want?




Further Reading: Bill is so adamant about the disaster that’s coming that he’s put together a tell-all presentation to help you prepare for the consequences of decades of reckless Fed policies.

Investor Focus


Editor’s Note: Chris Mayer is one of Bill’s star analysts.

Bill even invested $5 million into following Chris’ stock picks from his own family trust.

There’s one question I get from readers over and over again…

Why invest in stocks if the world is going to pot?

I’m going to cite one piece of remarkable evidence I uncovered in my own massive study of the stock market’s biggest winners.

I call these winners “100 baggers” (stocks that returned 100-to-1). And after spending three years and $138,000 to investigate them, I discovered they all have certain aspects in common.

I’ll tell you about those attributes in another essay. For now, let’s agree that there is plenty to worry about. And the stock market is not cheap.

As Bill likes to point out, the S&P 500’s CAPE ratio (a stock valuation measure designed to smooth out earnings volatility) has only been this high or higher three times in the last century – right before the crashes of 1929, 2000, and 2007. That means many stocks are expensive.

But just because a stock market index like the S&P is pricey doesn’t mean there aren’t good values out there. Unless you are a buyer of the index itself, it is not relevant to the business of finding great stocks today.

Let me give you a historical example: 1966 to 1982.

This 16-year stretch was dead money for stocks – or so many people would have you believe. The Dow Jones Industrial Average basically went nowhere. And if you factor in the period’s high inflation, the performance was even worse. Thus, you might conclude, you didn’t want to be in stocks.

But here’s what my research on 100 baggers found: There were 187 stocks you could’ve bought between 1966 and 1982 that would have multiplied your money 100x.

In fact, during that 16-year stretch, you’d have had at least a dozen opportunities each month to multiply your money 100x if you just held on.

In some cases, you didn’t even have to wait very long. Southwest Airlines returned more than 100x in about 10 years beginning in 1971. Leslie Wexner’s L Brands (owner of Victoria’s Secret, among other retail properties) did it in about eight years starting in 1978. In 1966, you could’ve bought H&R Block and turned a $10,000 investment into $1 million in under two decades.

So the indexes can tell you what kind of environment you are in. But they don’t predict what will happen to individual stocks.

It’s certainly harder to find great opportunities in highly priced markets. And it’s easier to find big winners at market bottoms (but perhaps not so easy as to make yourself buy them, as fear is rife at such times). These facts should surprise no one.

However, my point is simply this: Don’t fret so much with guesses as to where the stock market might go. Keep looking for those 100 baggers.

If history is any guide, they are always out there.

Tomorrow… what 100 baggers have in common.

Editor’s Note: Right now, Chris is sharing his secret for identifying “the next Starbucks,” “the next Apple,” and “the next Wal-Mart” years in advance of anyone on Wall Street. He calls this investment strategy “the biggest breakthrough of my career.”

Tonight at 8 p.m. ET, Chris will be hosting a free investment masterclass to show you how it works – and how it can vastly improve your investment returns. The best part is this series is absolutely free. For details, click here

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As Bill mentioned above, he’s “often surprised… often touched… and sometimes alarmed” by the feedback he receives from Diary readers. And today is no different…

Even Diary fans didn’t much like yesterday’s issue about Trump’s apparent aversion to free trade – “Trump Can’t Beat THIS Trade Deal.”

I love your Diary, but I have a question on your stance from the Jan. 4 edition. You say about jobs, “If it is not you, what do you care if it goes to someone in Detroit or someone in Guadalajara?” Then, at the end, you say, “This fake money system – not free trade – is the real problem. It may be a great ‘deal’ for U.S. consumers. But it is a disaster for the U.S. Main Street economy.”

So, is “Main Street” worth preserving? According to you, jobs should be filled by the most capable and cost-effective workers, regardless of location. As long as we “benefit” by cheaper prices, who cares, right? But what does “benefit” mean?

I’m not saying I have the answers, but I think you’re oversimplifying the issue. Some jobs can leave the U.S., but we need to be sympathetic to what “Main Street” means to our country? Seems like a circular argument. What’s your solution?

Glenn G.

You asked this in yesterday’s newsletter: “But why is a job north of the Rio Grande better than a job south of it?”

The answer is that if the job in the north disappears, then we taxpayers have to pay (welfare, food stamps, government housing, Medicaid, etc.) for the person or family that would otherwise be paying their own way. Not so if the job in the south disappears.

Richard K.

It’s hard to compete with countries who put to work millions of underage children and women for $1-a-day labor. Immoral is the word I would use instead of “unfair.”

What would Americans prefer? Putting millions of Americans out of work and sending our jobs overseas? Or putting millions of overseas workers out of work and creating millions of jobs for Americans? China has the right idea. They are creating an “in-country” economic system, instead of a global economic system.

Are some major global U.S. companies going to lose during this battle of “globalization?” Sure… undoubtedly so. Tough titty, Miss Kitty! Maybe it’s time to start creating the same type of economic system that the Chinese have been making – creating goods, services, and jobs inside the U.S.

Can it be done? Well… it will be difficult, because the attitudes of most Americans must change. We will all need to buy only “American-Made” products. That will require a heavy tax on stuff like popular cars made outside the U.S.

Anyway… it’s time countries like China and Mexico start paying up for several decades instead of us. See how they like it!

Jim P.

But Bill still has his supporters…

Why is increased buying power through lower prices always disparaged, while buying power through higher income is always praised? Buying power is buying power, isn’t it?

Bruce H.

Excellent take on Trump’s bombast today. This line in particular: “Presumably, people in both cities are equally charming and equally worthy of employment.” It is a sentiment that, if widely held instead of decried by the “Us vs. Them” crowd, would make the world instantly a better place.

Jim L.

Greetings, Bill. And Happy New Year to you, Elizabeth, and your family.

I am a retired 67-year-old high school teacher living in Vancouver, Canada. And I have been following you religiously for years. Thanks so much for your insightful, sage advice in such uncertain times. I also very much appreciate your tongue-in-cheek sense of humor.

Take good care, and all the best for 2017.

Richard M.

In Case You Missed It…

Tonight, Chris Mayer, the only analyst Bill follows with his own family money, is kicking off an investment masterclass. The aim is to show you how to find tomorrow’s biggest stock market winners today… before anyone on Wall Street is paying attention to them.

It’s not too late to sign up for this event. Best of all, it’s completely free for Diary readers, so don’t miss your opportunity to learn from one of the best investors in the business.