POITOU, FRANCE – What America most lacks is cynicism.
People listen to a news conference without laughing. They read the headlines without even guffawing.
They believe their “warriors” are protecting them abroad. At home, they think their elected officials have their backs.
And they think their president should be treated with the respect normally reserved for traffic cops and drill sergeants.
As for their money… they are ready to believe almost anything.
Yesterday, for example, the press reported that unemployment claims are at a 45-year low. The Dow rose more than 250 points on Thursday, and seems to be rebounding from October’s losses.
The increase in employment is counterfeit. Most of the new jobs are part-time, or in the low-paying hospitality and healthcare sectors. You can see what is really going on by looking at a number that isn’t tortured by the feds – real, final sales.
This tells us how much income people really have to spend. The last report showed final sales falling approximately 75% from the previous quarter. Annualized, final sales – real spending by (more or less) real people – are growing at less than 1.5%.
We say “more or less” because the final sales figure includes spending by the feds. As you know, the feds gave themselves more money to spend last year, which raised the federal budget for both military and domestic boondoggles.
Mr. Trump claimed he needed to throw the Democrats a $60 billion bone on social welfare spending so they would allow him to toss the military another $70 billion of red meat a year.
A cynic would see what was really going on; Republicans, Democrats, and the Trump administration are colluding to take advantage of the common man. The “liberals” get more money to bribe the zombies; the “conservatives” get more for their crony friends in the military.
CNBC is on the case:
From twin Air Force One aircraft to drone tankers, Boeing bagged a significant number of contracts this summer. In the month of September alone, Boeing was awarded more than 20 contracts with a cumulative value of $13.7 billion.
Currently, the feds are borrowing at a rate of $130 billion a month to keep the cash flowing. Next year, the government is expected to borrow $1.3 trillion. Thereafter, deficits will continue to rise from here to kingdom come.
“Let’s see,” the cynical citizen says to himself (no one else is listening). “How does that work? I know I’ll have to pay for this somehow (who else will pay?).”
But wait… Who will lend that much to the government? As recently as four years ago, the feds could count on the Fed, which was buying almost half of U.S. bond issues. Now, it is getting rid of them.
Whoa! The cynic’s eyes roll. His head spins as he tries to figure it out.
“I didn’t have to pay before because our central bank bought the debt. But where did it get the money? And now, the Fed is not buying the debt… So what’s going to happen?”
And here… we’ll help out. The cynic is right.
The feds can bob and weave. They can delay and disguise. But ultimately, all debts… and all government spending… must be paid back in time… by the productive, private sector.
In the short term, as the feds borrow more and the Fed buys less… yields must rise!
Then, asset prices – stocks and bonds, which anticipate and capitalize on a stream of future income – will both go down. Businesses will back off, too… as the federales “crowd out” private sector borrowers from the trough.
Expect a recession.
Other buyers are backing out of the bond market, too. Foreign central banks used to be reliable buyers of U.S. Treasuries… taking up as much as 90% of new bond issuance for most of the 21st century. Now, they’re sellers.
China, Japan, and India have reduced their holdings of U.S. bonds. The Wall Street Journal reports that the amount of U.S. debt held by foreign investors is down 50% from five years ago.
Which brings us back to the stock market… and the trade war. Yesterday, commentators said stocks were rising because the odds of working something out with the Chinese – to avoid an escalation in the trade war – have improved. From CNBC:
In a tweet, the president said he had a “long and very good conversation” with the Chinese leader, “with a heavy emphasis on trade.” He added that “those discussions are moving along nicely” ahead of planned face-to-face meetings at the G-20 summit in Argentina later this month.
Cynics will recall our prediction. Mr. Trump will do the same thing with China as he did with Canada and Mexico.
That is, he will act like a bully… and rant and rave about how bad the foreigners are. But he will ultimately back down and leave trade to go on, more or less as before.
Our president may be an ignorant, self-absorbed blowhard, but he is not a complete imbecile. Someone must have tipped him off by now; trade wars may be good politics, but they are bad economics.
A trade war with China, for example, would be disastrous. Not just for China, but for the U.S., too.
Mr. Trump’s personal fortune, the U.S. stock market, and the U.S. economy all depend on China to make things cheaply and pass along the savings to the rest of the world.
And then, like icing on the cake, the Chinese took their U.S. dollars and used them to buy Treasuries – helping to keep U.S. interest rates down.
Not that other countries can’t make things cheaply, too. But it would take many years – if it was even possible – to recreate China’s export machinery elsewhere.
The savings – from cheap Chinese labor – keep prices at Costco and Walmart from rising. Otherwise, the $20 trillion of new money added to the world economy over the last 20 years would be pushing prices through the roof.
Rising prices now would cause bond yields to spike up, just like they did in the 1970s. Investors would want to protect themselves from rising prices (which reduce the value of the income stream coming from their bonds).
Stocks would sell off, too, just as they did in the 1970s. As we saw yesterday, in terms of real money – gold – stocks lost 95% of their value from 1966 to 1980.
The equivalent loss today would take the Dow down from 25,000 to just 1,250. That kind of a loss is, well, unimaginable.
And yet, it has happened three times in the last 100 years – after 1929, 1966, and 1999 (when the loss was only 85%!).
That risk is far too great for Mr. Trump. As we’ve explored, he has more to lose than anyone – his fortune, his reputation, his bully pulpit. His re-election…
But wait… A note from a very cynical Dear Reader made us reconsider; he may have more to gain, too.
Jeff Brown, Editor, Exponential Tech Investor
In the next few years, the car you take to work will have no driver in the front seat…
Instead, you will be whisked to and from your destination thanks to a suite of self-driving taxis that are 100% autonomous.
I know that seems hard to believe. Self-driving cars may still seem like sci-fi technology.
But you might be surprised to learn that self-driving cars are already in use and on the road today.
I lived in Silicon Valley for years. And almost every day, I saw a car like the one below driving on the streets.
These vehicles are produced by Alphabet, formerly known as Google. They are used to shuttle employees around from location to location. There is no driver. Just room for two or three people to sit in the back of the car.
Now, believe me, I know better than anyone that Silicon Valley is a bit of a bubble. But this sort of self-driving technology will soon be mainstream throughout the U.S.
For instance, Alphabet also has a self-driving taxi company called Waymo. It has been testing self-driving taxis in Phoenix since the Spring.
Waymo recently announced that it plans to roll out the full ride-hailing service in Phoenix before the end of the year. And as of October 30, the company was also granted permission from the California Department of Motor Vehicles to test its self-driving cars on California’s public roads.
But before self-driving cars become widespread, another piece of technology will have to be rolled out…
You see, the way autonomous cars will become dependable enough to function on public roads is through the use of artificial intelligence (AI).
As these cars drive, they produce a massive amount of data, which is then analyzed with AI and used to improve the car’s driving performance.
How much data is being produced?
Just one autonomous vehicle is estimated to produce roughly 4,000 gigabytes of information a day. For perspective, the average high-definition (HD) movie has only 4 gigabytes of data. The below infographic from Intel gives you some idea of how much data will be created.
So the equivalent of 1,000 HD movies’ worth of data is collected by an autonomous car each day. And that’s just one car. Now, imagine thousands of them…
As I’ve shown readers in the past, our current wireless networks simply can’t handle that much data.
I’ve written about 5G in the past. But for those who need a refresher, just know that 5G networks will be, on average, 100 times faster than today’s 4G wireless networks. Today’s current levels of data creation are already straining the 4G networks. The flood of data from autonomous vehicles would overwhelm the network.
It’s for this reason that the success of self-driving cars depends on the rollout of 5G networks.
One aspect of 5G that’s still not fully understood is the impact it will have on new technologies like self-driving cars.
All told, 5G is expected to usher in $12 trillion in new wealth.
That’s why I say it’s not just evolutionary, it’s revolutionary.
– Jeff Brown
P.S. The 5G network rollout promises to be the best investing opportunity in a decade. And I recently uncovered a little-known American company that will help make the 5G future a reality. I suspect the share price for this small-cap company could climb 10 times as 5G rolls out in the months and years ahead.
To get more details, and to see the four stocks currently on my “5G watchlist,” join me next Wednesday for a free investing webinar. Go right here to save your spot.
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Saudi Arabia has become an international pariah after its government was accused of murdering a journalist in Turkey. American CEOs pulled out of Saudi Arabia’s “Davos in the Desert” business conference en masse, but they might still be cashing Saudichecks…
In the mailbag, a few dear readers connect some dots of their own…
Hi Bill. First time writing back. I very much enjoy your perspectives. On this article, let me run an idea by you… See what you think:
The Fed is the primary vehicle that has destroyed the Republic in more ways than can be mentioned here.
As you note, this is something of which Trump has long been aware;
On entering office and faced with unreconcilable debt – What to do?
Ride “the bomb” down like Slim Pickens in Dr. Strangelove? Or maybe instead, use the cobbled mess to drive borrowing through the roof to build infrastructure, the military, and anything else (tax cuts?). Because this will without doubt a) provide long-needed respite to our tottering system, and – using the Fed’s own lying means of presenting economic info – “MAGA” to the public at large; and b) never need to be “repaid” because the combined effect will implode the economy, and with it, destroy the Fed, allowing for a full “economic reset” to (dare one hope) an honest (and finite) monetary system.
– Richard L.
The tendency of government is always to do too much, or too little, at the wrong time. Donald Trump – now that he is THE government (or thinks he is) – is a good example. He is overly heavy-handed in nearly everything he does, especially as it concerns the economy. His tax cuts, mostly benefitting companies and the one percent, are one example. His trade policies, especially, are hugely overdone, causing increasing problems.
China seems to have nearly given up hope of continuing to be the main supplier to the U.S. consumer, and is beginning to concentrate on other markets. American imports from China reached a new high earlier in the year, as importers stocked up to beat Trump’s immense (and probably unconstitutional) tariff boosts.
Now, Chinese manufacturing has dropped to a two-year low, as American orders falter in fear of the cost of those tariffs, doubtless putting many Chinese workers out of jobs and causing problems in the Chinese economy. Chinese imports from the U.S. are also falling, hurting American companies and workers, as the Chinese government also overreacts.
I have no doubt that Trump is correct about Chinese industrial espionage, etc. But did he need to attack the whole economy of the country in order to resolve the problems? In reality, I have little doubt that American companies and agencies do much the same thing to other companies and countries. They would be foolish not to.
In the meantime, Trump’s policies are beginning to rebound on the American economy. Importers and merchandisers now have huge inventories pulling at profit margins until they can sell them. Will they lay off employees to save money, at least for a while? Or will they just replace more human employees with robots?
– Chuck B.
Meanwhile, a word of caution for Bill on working with stones, and a dear reader shares another memento mori…
Hi Bill. Be careful with the masonry stuff. I’m 72 and just recuperating from my second hernia operation in 17 years. And this one is taking a lot longer than the one I had at 56. Our muscle tissue gets a lot softer as we age! I couldn’t even drive an automatic car (doctor’s advice) until 10 weeks after the operation.
My Dad was a famous “mason to the stars” in Hollywood. He had a very fulfilling life, and actually had a “six-pack” stomach until the age of 65 – hard as a rock. He put in his last fireplace when he was 80! The mayor of Bullhead City, Arizona worked on him for over two years to get him to come out of retirement to do the job. So I see where your head is at. But they don’t make them like the World War II crowd anymore, and you’re not one of them. So back off before you get a hernia like me!
– Cuyler S.
First, my near-obligatory appreciation for the enjoyment and benefit of your daily tales and musings for these nearly 20 past years.
Second, my favorite memento mori, to be found with an incised skeleton on the south wall of the nave of Norwich Cathedral (also home to a stained-glass window in the Lady Chapel of Mother Julian with her marmalade cat):
As I am now
So shall you be,
To follow me.
– Chris H.