Bill Bonner – Bill Bonner’s Diary (United States) –
GUALFIN, ARGENTINA – The Dow fluttered yesterday. The Nasdaq, too.
Our guess is that the smart money is pulling out first.
Paul Tudor Jones, Ray Dalio, Bill Gross – many Wall Street giants have already announced that they are turning bearish. The rest of the smart money keeps its mouth shut… and wonders when to sell.
Fed to the Rescue
All markets go up and down. That’s how they discover prices – always guessing… always adjusting… over-optimistic one day, full of gloom and doom the next.
But there’s something different about this market. The Dow has gone up from 1,000 in 1982… to more than 24,000 today.
Three times the market has tried to correct – in 1987, in 2000, and in 2008. And three times the Fed has “come to the rescue” with more cash and credit, slashing interest rates and goosing up stock and bond prices through so-called “quantitative easing” programs.
And the next time the market tries to correct… which could happen any day… the Fed will want to cut rates again to stimulate the flow of more cash and credit.
As we’ve explained, understanding Fed policy moves is as easy as 1, 2, 3.
Mistake #1: Leave rates too low for too long.
Mistake #2: Raise rates to try to “normalize” things.
Mistake #3: Drop rates in a panic.
Now, the Fed is making Mistake #2 again. After 30-plus years of adding to its balance sheet (by buying bonds), it has now begun a program of quantitative tightening, effectively selling bonds (or simply letting them expire).
By the end of this year, it is scheduled to be offloading bonds at a rate of $600 billion annually, which is sure to set the stage for Mistake #3 again.
Cards on the Table
Over the last couple of days, we’ve been laying our own cards on the table. We want dear readers to see what we’re holding – including the jokers.
Yes, in addition to the fairly standard jacks of stock prices, queens of GDP growth rates, and kings of inflation, we have two cards that most people have never seen.
First, as we set before you yesterday, we think the government is not what people think. Second, neither is the money.
Often, when we explain what we see happening, people say, “Oh… they’d never let that happen.” Or, “If they did that, we’d vote them out of office.”
Lies (especially those we tell ourselves) are always more pleasing than the truth. And myth always trumps reality. The myth is that the government of the U.S. operates by, for, and of “the people.”
It is supposed to make choices that suit the peace and prosperity of the nation; it would never go along with a multitrillion-dollar rip-off of the average voter… or permit a catastrophic meltdown in the economy.
After all, that is what an elite is for: to manage complex systems that require real expertise.
Well, we have bad news.
Over the last 30 years, maybe longer, Washington has been taken over by an incompetent and increasingly parasitic elite. Now, we have a government by, for, and of the insiders who control it. Naturally, they use their influence to shift more and more real wealth and power to themselves.
The most recent examples:
The Pentagon and its cronies just got an extra $700 billion over the next 10 years. (When the real shooting starts, we predict all this money will just get in the way.)
The steel industry – famous for putting one over on gullible politicians – paid for trade advisor Peter Navarro’s silly Death by China documentary, funneling the money through a “non-profit.” It turned out to be one of the best investments steel company Nucor ever made. Donald Trump saw the video and asked Navarro to advise him. What was his advice? To put tariffs on imported steel, handing Nucor a windfall profit.
The tax cut is supposed to return money to the people who earn it. What it really does is shift the burden of wasteful government spending from the present generation of taxpayers (some of whom make campaign contributions) to the general public and the future. Now, spending will be financed by debt… to be paid by someone, sometime, somehow…
The Democrats, Republicans, and every other malingerer, chiseler, flimflam fast talker, and goofball win-lose guy scored a major victory when they got Team Trump to join with Democrats Pelosi and Schumer to lift the debt ceiling and propose a budget that avoids any need for tough negotiations, compromises, or cuts.
Federal debt has been going up at a rate of $200 billion a month for the last six months. It hit a staggering $21 trillion just five days ago.
Bernie Sanders is, of course, a lefty scalawag.
But if he were in the White House, it would be a different story.
Republicans would have to dig around in the bottom of their desk drawers to find their old principles. They’d rediscover the virtue of debt ceilings. And spending cuts. Maybe even balanced budgets.
The Republicans could then stop the liberal giveaways. And Sanders and his allies (using the veto!) would stop the Republicans’ boondoggles.
As it is, every is for everything… all are happy to spend someone else’s (borrowed) money. They’re all on board – in the plush first-class section, of course – drinking martinis, slapping each other on the back…
…and enjoying the ride to financial Hell!
More tomorrow… including Joker #2…
MARKET INSIGHT: FAANGS ARE EATING UP THE NASDAQ
By Joe Withrow, of Research, Bonner & Partners
The top five U.S. tech stocks are eating up the Nasdaq.
Today’s chart tracks five of the largest tech stocks by market value, the so-called FAANGs – Facebook, Apple, Amazon, Netflix, and Google.
And it compares them to the total market value of the remaining Nasdaq stocks.
As you can see, the FAANGs now account for more than one-quarter of the entire index.
That’s up from one-fifth in 2015.
– Joe Withrow