PORTLAW, IRELAND – In sex, war… and fake-money systems… no one stops to count the costs until it’s too late.
You can quote us on that, Dear Reader.
POTUS will deliver his State of the Union address tonight. After the president’s speech, Stormy Daniels, the porn star with whom The Wall Street Journal claims he had an affair, will appear on the Jimmy Kimmel Live! show.
Our prediction: Neither celebrity will do the math.
Starting next year, federal deficits are expected to reach over $1 trillion a year – with no emergency anywhere in sight.
So far in this century, the feds’ debt has been growing eight times faster than GDP.
Total government debt is already programmed to hit $30 trillion within 10 years… but will more likely hit $40 trillion when deficits explode in the next recession.
Entitlement programs are open-ended. They go up – with no vote in Congress – as people get older.
Meanwhile, the military-industrial-terrorist cronies have such a lock on Congress that they are practically guaranteed increases, no matter how big the bamboozles are.
And the people who might have put the brakes on – old-fashioned fiscal conservatives – have disappeared.
All we have now are cultural conservatives, ready to intervene anywhere, anytime, to remake the world in their own image.
Treasurys in Retreat
We are just observers here at the Diary. We wouldn’t presume to try to change anything… even if we could.
But what we see is a big dot of irresistible force heading straight for another big dot of an immovable object.
Debt has to be serviced. Interest payments must be made. If, as we suspect, we are entering a rising interest rate cycle, the cost of servicing debt is going to rise sharply.
Have you been following the headlines, Dear Reader?
Not those goofball headlines on page one. No, we’re talking about the important stories buried deeper in the news.
“U.S. Government Bonds Drop Again,” on page 17 of The Wall Street Journal.
“Bond investors sound alarm over rising inflation,” on page 18 of the Financial Times.
“A sliding greenback ought to flash red for Trump,” on page 9 of the Financial Times.
Oh… what’s this?
“Stocks fall most in 2018 as Treasury yields climb,” reported Bloomberg recently.
Treasury prices have been in retreat for a year and a half. And Treasury yields – which move in the opposite direction to prices – have doubled since their lows in July 2016.
Has an epic credit-tightening cycle finally begun?
We won’t know that for a while. But yesterday, the yield on the 10-year Treasury note – an important benchmark for borrowing costs throughout the economy – topped 2.7%.
Hey, Big Spender
Watch the president’s speech tonight. It will give you part of the answer.
Mr. Trump is no old-fashioned conservative. In addition to failing to curb entitlements… increasing transfer payments to the Pentagon… and pushing through a tax bill that increases the deficit by a further $1.5 trillion…
…he’s going to pop another cork.
In short, Donald J. Trump is a big spender… good lookin’… and so refined…
Typically, big spenders – trying to impress – spend money they don’t have on things they don’t need. And, in government, unless the Fed is loosening credit at the same time, this causes bond yields to increase.
This is the “crowding out” effect that the old conservatives worried about back when there still were old conservatives.
The pool of real savings is limited. When the government draws too vigorously from that well, the price of credit goes up.
And now that the feds are trying to borrow more money, they’ll find that their biggest buyer – the Fed – has turned into a seller.
Yes, that little note was buried in the back pages of the newspapers, too:
“Central banks are moving to quantitative tightening,” page 11 of the Financial Times.
And now cometh the Big Spender with more bills to finance – a $1.8 trillion infrastructure project.
Pardon us if we do a little math: At $30 trillion, the annual cost of interest, at a modest interest rate of 5%, would be about $600 billion. At $40 trillion, the debt would cost $800 billion.
And these terrible numbers will come just as medical and retirement expenses rise sharply, too.
But don’t worry about it; bond investors are already on the case. They can count.
And they do.
MARKET INSIGHT: BOND YIELDS SPIKE
By Chris Lowe, Editor at Large, Bonner & Partners
As Bill reports, bonds are in retreat…
Today’s chart tracks the yield on the 10-year Treasury note (which moves in the opposite direction to prices) over the past four years.
As investors sell bonds to buy stocks and other riskier assets, the 10-year yield has broken above the 2.7% mark for the first time since September 2014.
And over the past 18 months, the 10-year yield has nearly doubled.
– Chris Lowe
The Bond Sell-Off Won’t Be Quarantined
As Bill mentioned, bond yields are spiking as Treasurys sell off. If yields continue to climb, they could spell trouble for stocks. And the market euphoria could turn to despair.
Buffett Takes on Healthcare
It’s no secret that healthcare costs are soaring for Americans. Now, Berkshire Hathaway, along with Amazon and JPMorgan, is creating a new business to lower healthcare costs. Here’s how healthcare providers reacted.
What 99% of Investors Don’t Understand About Cryptocurrencies
Most investors have heard of cryptocurrencies like bitcoin. But according to Jeff Brown, Bill’s top technology expert, 99% of investors are missing the bigger picture.
In the mailbag, more feedback on the map of America’s depressed counties:
Your map shows Lincoln County, Nebraska, the county I live in, as being “very depressed” – nothing could be further from the truth. The Union Pacific classification yard, the largest in the world, is located here; unemployment is under 3%; the town is full of banks and more are under construction. At least for my county, the very depressed designation is baloney.
– Karen T.
Please do your reader, Rhys J., a favor and remind him/her about fracking and the oil boom. Then he/she can come back from his/her consternation about why the physical middle of the country is improved. Many thanks for sharing with the readers the excellent exposition on the local economies.
– Paul M.
Meanwhile, Saturday’s warning of a coming financial avalanche has sparked conversation…
You made a good case for triggerless avalanches. Obviously, a trigger to one grain of sand is not the same as the trigger to another, especially when the pile is always moving to some degree. It probably has more to do with how jumpy the individuals are feeling. If they get nervous enough, they leave the game early (and if they’re brokers, their clients may switch to someone else), leaving behind this structure of “hard” (new and clueless) and “soft” investors. Freeze, thaw, freeze, thaw.
What’s different this time is that the pile of fiat currency is bigger. In the old days, when each country had its own currency, if the pile got big, investors would migrate to another country. There was a check and balance on the size of the pile. But this time, all the fiat currencies are tied to the dollar, and those who understand that are trying not to sneeze.
– Sandra K.
Well-written, well-stated, scary, and admittedly entertaining. One of the reasons I was drawn to the Diary in the first place was that you write with truth – and do so with wit, humor, and with an enviable knowledge of the English language! I like the way you divorce yourself from the outcome and openly print the comments from those that criticize.
Please know this: Some of us are reading, understanding, and getting a huge case of heartburn! We need good options on how to protect ourselves amid all of the various voices we are listening to – Bonner, Stansberry, Casey, Eifrig – and need to make sense of all the competing opinions.
We need a reasonable PLAN that eliminates some of the risk we face. We have a substantial nest-egg, but don’t want to overreact. We do not have the resources to purchase a “bolt-hole” and lack the knowledge to purchase/store gold. (Looking into that now!) I’m sure we aren’t a lot different from many of your other readers, so please remember us all as you choose further topics to address in the newsletter.
– Hazel B.
Well-written with skillful application of avalanche metaphor. However, the phrase “new snow laying on top of a layer of old snow” should read “new snow lying on top of a layer of old snow.”
– Laura L.
The sun is FALLING, again and again and again, to infinity. Oh, and it’s RISING, too! Eeek.
– Bjorn A.
The assertion about the feds not letting a bear market happen reminds me of something some fool said on TV in the late ‘80s. He said that the Washington metropolitan area (D.C., Northern Virginia, and a small chunk of Maryland) was “recession-proof.”
What was the basis for the whole “recession-proof” idea? It was based on the federal government having such a heavy presence in the area. People thought that nothing could happen with so many government jobs in the area. Somehow, they thought, it just had to keep everything afloat while the rest of the country floundered. Ultimately, like the proverbial emperor, the theory had no clothes.
I’m scared to death. I’m 60 years old and a Stage 4 cancer survivor with gobs of medical debt, a house that might get ripped out from under us, and a physically demanding job in a company that is totally dependent on the building industry. It takes me 56.5 hours per week to make enough to keep us afloat, and we are very low-maintenance people. I’ve been trying to dig in for about four years due to Bill Bonner’s warnings, but it’s really hard to build up anything that will last when the rug is ripped out from under most of us in the not-too-distant future. We both have significant health problems, and my wife is five years older than I am. On her last birthday, she was forced onto Medicare, and that costs us an extra $130 per month.
Like you guys, I’ve tried to warn people for a few years that a big-ass recession is coming. Most people, my family included, just look at me like I’m crazy. How do you make people understand? And what do you do when you have no extra money to effectively prepare? I’d really like to know.
– Pete R.
IN CASE YOU MISSED IT…
There’s still time to reserve your spot at this free online event.
We’re calling it the “Legends of Finance Summit.” Bill will be sharing a stage with legendary speculator Doug Casey and Bonner Private Portfolio editor Chris Mayer. Together, they’ll reveal how to profit from Bill’s audacious “Trade of the Century.” Details here.