Bill Bonner – Bill Bonner’s Diary (United States) –
When you want to help people, you tell them the truth. When you want to help yourself, you tell them what they want to hear.
– Thomas Sowell
RANCHO SANTANA, NICARAGUA – When we first arrived here in Rancho Santana on Nicaragua’s Pacific coast, we smelled smoke.
Across the valley, it looked at first like a morning mist rising between the hills. But last night, we looked out from our bedroom and saw what was happening. A brush fire was arcing its way up the mountain to the south of us.
It’s the dry season. The ground is covered with dried-up leaves and grass. A gusty wind blows from the east, often knocking over the chairs on the porch.
Our subject for today and tomorrow is truth.
We begin with an observation: There’s a world of difference between a brush fire and an economic policy.
Hammer and Tongs
The truth that many people long to hear is that Donald J. Trump is sweating over the Deep State with a hammer and tongs. They want to see him pound it… bend it… break it apart… and put it back together again.
Then, pointing to record-high stock prices, they say: “See… he must be doing a good job.”
But this is not a brush fire…
A fire is real. It can scorch your fingers or burn down your house. “News” in the public space is something else. It is like a presidential tweet or an argument between halfwits: There may be some truth involved, but it can be almost impossible to find.
So far, there is no sign of either hammer or tongs in the Trump program.
Yesterday, for example, the GOP-controlled Congress came out with its much-anticipated medical plan.
A quick reading suggests it will be an improvement (slightly fewer win-lose deals). But it won’t significantly change the flow of funds to the crony medical-insurance-ambulance-chasing industry.
And that is probably what the stock market likes.
In other words, investors are not disappointed with “The Donald.” He hasn’t hammered the insiders or substantially threatened the Deep State; they’re glad he didn’t.
The markets know that squabbles with Arnold Schwarzenegger, Barack Obama, or the FBI don’t matter. What matters is this administration having investors’ backs.
The style is different; the substance is the same.
And the fake-money system – guarded by a phalanx of ex-Goldman guys – is safe.
End of ZIRP
Today marks the beginning of the ninth year of “recovery” from the crisis of 2008-09.
Interest rates have been at emergency lows – near zero – the entire time, even as the stock market added $21 trillion of paper wealth.
That’s how much stock prices have gone up.
But now, word on the street is that ZIRP (zero-interest-rate policy) is coming to an end. And Bank of America Merrill Lynch is telling the Trump team to limber up.
First, the president of the powerful New York Fed, William Dudley, told the press that the market’s “animal spirits have been unleashed.”
And citing “sturdy” jobs gains, inflation increases, and rising optimism for both consumers and business owners, he also said that “the case for monetary policy tightening has become a lot more compelling.”
Hence, Dudley and the Fed may increase the price of credit at the next Fed policy-setting meeting later this month. Bloomberg puts the odds of a Fed rate hike at 90%.
In other words, unless the stock market crashes before March 15, it’s highly likely the Fed will raise the federal funds rate.
Meanwhile, Bank of America Merrill Lynch is telling investors to watch out for a big crash in the second half of the year.
Corporate earnings are falling. And if the Fed’s rate-hiking program gets underway in earnest… it will continue until a financial crisis shows up (i.e., a crash).
Then, the Trump administration will come upon the can that the last three administrations kicked down the road. And when it does, it will do what they did: Give it a whack.
Will that happen? Time will tell.
More to come…
P.S. The fire burned all night, up one side of the mountain and down the other side (which we couldn’t see). It must have burnt up several thousand acres. We saw no efforts to contain it. And as far as we know, there are no houses on that mountain.
This morning, we still see isolated pockets of fire, but not the blaze of last night.
Between the conflagration and us is a flat valley full of tinder… and two small rivers. The rivers are dry this time of year and full of dry leaves. And they are so small that tree branches from each side meet overhead.
What would have happened if the wind had shifted in our direction? We don’t know.