And perhaps you’re alive
And perhaps you’re dead
Hoo ha ha
Hoo ha ha
KNOCK KNOCK KNOCK
KNOCK KNOCK KNOCK
– “Fragment of an Agon,” T.S. Eliot
PORTLAW, IRELAND – We’ve always wanted to quote the lines above. But we never had the right occasion.
Perhaps this is it.
Yesterday was gloriously long. The sun rose at 5 a.m. Then hour after hour of magnificent Irish summer.
We are staying in an apartment at our overseas headquarters – a converted convent close to the village of Portlaw in County Waterford.
Inside, the spaces are grand and luxurious. Outside are lawns, flowers, and a field of hay, which has been baled into big, round wheels.
Crows wandered among the bales yesterday, eating whatever seeds and insects had been hiding under the hay.
Bill strolls through St. Stephen’s Green in Ireland
As afternoon turned into evening, the sun sank slowly in the sky. But it refused to go away. Hour after hour, it dipped lower. But like a shipwrecked sailor, it stayed above the surface… struggling to breathe as long as it could.
Then it was gone… and the day was over.
Meanwhile, back in the world of money and humbug…
Yesterday, House Speaker Paul Ryan gave voice neither to hope nor conviction, but to simple tomfoolery.
“We have to get this done in 2017. Transformational tax reform can be done, and we are moving ahead. Full speed ahead.”
Transformational tax reform sounds exciting. But what does it transform? And into what?
Hoo ha ha.
Let’s try to swim back in toward the shore… where we can get a toe or two into the mud and connect to the real Earth.
There is a genuine problem in America: Most people are getting poorer. We’ve never met a tax cut we didn’t like. But we’ve got news: There is no tax reform on the horizon that will make them richer.
Most people are not poor because the feds take too much of their money. They are poor because the feds have gummed up and distorted their economy.
Hobbled by regulations, fake money, and crony deals, it can’t deliver the jobs and incomes people need.
This was all worked out by the classical economists. As Jean-Baptiste Say put it, in 1803, in his A Treatise on Political Economy, “It is production which opens demand for production.”
This became known as Say’s Law: Supply creates its own demand. You buy products with products. If you’re going to spend money, you have to first make something other people want to buy.
Not medical care at 10 times what it should cost. Not endless war. (Hey, we’re sending more troops to Afghanistan; that ought to get the job done!) Not dopey reports on our foreign bank accounts… or bubble stocks.
You can’t force people to buy your stuff by imposing trade barriers… or by dropping interest rates to the floor. Only win-win deals, where you earn your money, will work.
Today, we will prove one of the important points we are making: People are getting poorer. Tomorrow, we’ll come back to the real problem… and real solutions.
As to the first point, many of the statistics on U.S. income and wealth are badly distorted. One major distortion comes from inflation adjustments. Official numbers tend to understate the loss of income due to the loss of buying power of the dollar.
Take an automobile, for example. A Ford pickup today is technologically superior to one from 1980. So the feds adjust the price downward. You may spend $30,000. But the feds say you only spent $15,000 because you got twice as much truck for your money.
Hey, presto! No inflation.
The other major distortion comes from averaging. Since 1980, half the population has gotten NO income gains. None.
But the top 1% has more than tripled its income and now earns 81 times more, per capita, than the people in the lower half. Average it out and it looks like everyone is better off.
Until 1990, the typical American family earned more than it needed to maintain its standard of living. Then, with post-inflation wages stagnant and consumer prices rising, it had to borrow just to stay in the same place.
This big increase in consumer credit is what kept the economy going and living standards more or less moving ahead.
Another thing that distorts the picture is that “social benefits” – such as disability, unemployment, and food stamps – are at record levels.
Never before have they contributed so much – as a percentage of disposable income – to families’ well-being.
This allows the feds to say that people are “better off,” even though they have been turned into welfare zombies.
These distortions carry over into the figures on the “wealth” of American households.
According to figures from the Fed, Americans have never been richer, with $110 trillion in assets and only $15 trillion in liabilities.
But almost all the increase has come from rising real estate prices and the phony-baloney stock and bond markets.
And this wealth, too, is concentrated in the hands of the rich. Nearly all of the wealth supposedly created by rising asset prices has gone to the top 10% of earners.
Average it out, and it looks as though we’re all better off because of the bubbles on Wall Street.
In reality, only a few people are. And they’re only better off, dare we say it, for as long as the feds can keep the bubble intact.
HOO HOO HOO.
Tomorrow – why the tax system is a problem… but not a problem that will be fixed anytime soon.
BY CHRIS LOWE, EDITOR AT LARGE, Bonner & partners
It’s just not getting its way on oil prices.
Last month, the 14-nation oil cartel teamed up with Russia to cut crude oil production by nearly 2 million barrels a day.
This was supposed to throttle supply… and push up prices.
But since the deal was announced, Brent crude oil – the international benchmark – has fallen 14% to $44.82 a barrel.
That’s the lowest level for the year.
And it marks the beginning of a new bear market for the black goo. Brent crude is now 20% below its recent peak.
What’s stopping OPEC and Russia from getting their way?
U.S. shale oil drillers.
According to oil services company Baker Hughes, the U.S. rig count has risen for the past 22 weeks straight – a streak not seen since 1987.
– Chris Lowe
Hedge Funds Aren’t Dead Yet
Hedge funds have had a rough few years. Poor returns, high fees, and legal trouble have forced a record number of fund closures. But here’s why hedge funds might be preparing for a comeback.
Here’s What’s Pushing Bitcoin Higher
Bitcoin is the best-performing cryptocurrency to date, going from pennies to a high of over $3,000 in just a few years. Here’s the reason bitcoin keeps surging.
In response to yesterday’s Diary, readers consider if modern investors have lost their heads…
Since when have investors been able to resist the euphoria that precedes a recession? Logic is the first casualty of a bull market. Either investors are simply undisciplined or, as Bill mentions, the Fed has plucked their eyes out. If the latter is true, we should be buying hard assets at this point.
– Michael C.
I’m a little confused. The market and individual stocks are all over the place thanks to people being at the helm. All the booms and busts are caused by emotions, stupidity, and corruption of the average person. But then the algorithms take over. Now, you’re saying that we need humans to do “traditional stock research” instead of the logical bots.
The market is a joke. You say so yourself. So if we’re getting dumber and dumber by the day, why would you want to go back to the good ole days?
– Glenn G.
I loved the article on the Fed cutting the optic nerve, reminds me of the old joke, about a person getting an eyesore-rectomy where the doctor clips the optic nerve between the eye hole and the a*****e so one doesn’t have such a bad outlook. Keep up the good work.
– Tim G.
Why can’t the market learn to think as Bill does?
– Mike Q.
Last spring in Miami Beach, our colleague Louis James gave a presentation behind closed doors…
Louis is a gold stock specialist with a track record of finding triple-digit winners. So when he announced that he had uncovered a strategy for seeing returns of 700%, 869%, and 876% from penny gold stocks, the room listened.
Here’s what Louis told us.