The Death Star Is Heading for the U.S. Economy

05.02.2018 • United States

Bill Bonner – Bill Bonner’s Diary (United States) –

PARIS – “Keep your eye on Friday,” the old-timers used to say.

When the pros are worried, they sell on Friday so they can spend the weekend without sweating.

When they are confident, they buy on Friday so they don’t miss out on weekend gains (when traders engage in electronic “after-hours” trading).

Death Star

Last Friday, selling pressure left the Dow 666 points lower by the closing bell. And this morning, stock markets everywhere from Tokyo to London are sliding.

Markets go up and down. This market will go down, no doubt about it. If not now, later. That would be nothing new. Hardly worth mentioning.

But there’s more to the story: In addition to plunges for stocks and bonds, the entire financial system is ed for a long, painful destruction.

So far, hardly anyone notices.

Today’s New York Times makes no mention of the Death Star ed for the U.S. economy. Instead, all we find is the typical public nonsense.

Trump did this… Russia did that… Nunes… Mueller… Israel… Poland… blah-blah. If we’re right about what is coming, none of this will matter.

But that’s the way it works.

The old-timers also say that a bear market will always try to take as many investors down with it as possible.

It would not be unusual for stocks to recover… so that investors think the danger is over. And then – whack! – a real crash.

As always, we wait to find out. We will do our best to enjoy it… trying always to understand it.

We watch. We wonder. The dots come together – slowly, slowly… then all of a sudden.

Roadkill Dinner

We’ll return to the financial picture in a minute… But first, a quick travel update.

We interrupted our Irish homesteading adventure to take care of business in Paris, after a weekend in the French countryside.

“I’ve fixed a good meal for you,” said an old friend on arrival.

“We’re going to have fish that we got out of the pond… and parmentier de lièvre [hare baked in a potato cake].”

“Um… did you shoot the hare on the farm?”

“No. We found it on the road. Someone had hit it with his car. But it hadn’t been run over. And it was still warm when we found it.”

“Oh… sounds great.”

This was the first time we had had a roadkill dinner. But it turned out to be delicious.

Rate Angst

It rained all day on Saturday and Sunday, so we were unable to do much outside work.

But it was still a pleasure to be back at our “home” in France. We’ve been there now – on and off – for nearly a quarter-century. Too bad about the taxes.

Meanwhile, back in the markets…

The press reported that the proximate cause of Friday’s stock sell-off was “rate angst” and “pricing in reflation.”

The rate angst comes from the well-advertised change in Fed policy. The U.S. central bank is no longer forcing interest rates lower; instead, it is pushing them up.

For example, the yield on the 10-year Treasury note – a key benchmark for borrowing costs throughout the economy – is now 2.85%.

That’s more than double where it was at its all-time low, set on July 6, 2016.

As for pricing in reflation (aka government stimulus), it’s about time.

Crude oil is trading at $65 a barrel, more than double where it was at its low in January 2016. Gold is moving up, too.

U.S. consumer prices are still being held down by the Chinese prices for goods and the Indian prices for services. But that ought to change as Trump’s protectionist trade policies bear their rotten fruit.

Addicted to Debt

We commented in these pages after the 2016 presidential election that Trump means reflation.

Here’s how we put it at the time:

The “reflation trade” – betting on rising stock and commodities prices and falling bond prices – is a gamble on inflation; it is a bet that Mr. Trump will rotate from monetary stimulus to fiscal stimulus. Long term, we think it’s a good bet.

Our reasoning was simple: The Deep State (the loose collection of insiders from both parties that controls the government without answering to voters) lives on taxes and credit. Taxes are limited by economic output. And the economy is slowing. So Trump and the Deep State need debt more than ever.

This is why the federales are expected to borrow 84% more this year than last. As we predicted, the era of trillion-dollar budget deficits is back.

Reports The Washington Post:

Here are the exact figures: The U.S. Treasury expects to borrow $955 billion this fiscal year, according to documents released [last] Wednesday. It’s the highest amount of borrowing in six years, and a big jump from the $519 billion the federal government borrowed last year.

“We’re addicted to debt,” says Marc Goldwein, senior policy director at the Committee for a Responsible Federal Budget, a bipartisan think tank focused on fiscal policy.

What do you mean “we,” paleface?

The politicians, the Deep State cronies, and the zombies all depend on more debt.

The rest of us would be better off without it.

More to come…





By Chris Lowe, Editor at Large, Bonner & Partners

Investors are spooked…

That’s the message of today’s chart, which tracks Wall Street’s “fear gauge,” the CBOE Volatility Index, or VIX.

A rising line on the chart below means investors are expecting more dramatic price swings for the S&P 500 over the next 30 days.

A falling line means they see calmer waters a.


Since the start of 2016, the VIX has put in a series of lower highs and lower lows – a classic downtrend.

But last week, it broke out of that downtrend (blue line on the chart), a sign investors are growing more fearful.

The index is now up 94% since the start of 2018 – the biggest rise since August 2015, when the S&P 500 tanked 11%.

Chris Lowe

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