Friday, September 25, 2020

"Hell Can Wait"

By Bill Bonner

"The future is somebody else’s problem…"
– The Stansberry Digest paraphrasing U.S. Secretary of 
the Treasury Steve Mnuchin’s remarks to Congress yesterday.

SAN MARTIN, ARGENTINA – "And so, we come to the end of another week. Let’s see if we can summarize what we learned. The Old Economy is fading away…The New Economy is a dangerous bubble… One grows cold. The other is too hot to touch. What are we to do?

No Friends: Economies always evolve. And governments always try to look into the future and stop it from happening. The future has no friends. It generates no revenues. It pays no taxes. It can’t vote… It can’t riot in the streets… It can’t even write a letter to the editor.

The present, though, is Mr. Popularity. It makes profits, pays wages… and has deep pockets. After all, it owns 100% of America’s wealth. It has lobbyists, too, and trade unions, political parties, and 535 members of Congress ready to do its bidding. What’s more, the future is where Hell is located. The planet is overheating! Two million COVID-19 deaths! China is overtaking us! Robots are stealing our jobs! Oh… and here comes a depression!

Full Weimar: Whatever the threat, the feds mobilize to stop it… with green-energy subsidies, tariffs, sanctions, lockdowns, hiring credits… a Patriot Act… or a Paycheck Protection Program (PPP)…Naturally, the feds are most eager to stop a depression. But they will not admit that they had any role in causing it… that their own policies (ultra-low interest rates and fake money) created excesses that need to be purged… Nor should you expect them to confess that their quack remedy (more money-printing) will only make the eventual correction worse.

So far this century, they’ve held off three major corrections. From October 2000 to July 2003, they chopped 5% off their key lending rate and set off the mortgage finance blow-up of 2008-2009. Then, they stymied that correction, too, again cutting their key rate by more than 500 points… and printing up an additional $3.6 trillion. And this year, they’ve gone Full Weimar, with rates back down to zero… and another $3 trillion in new money.

Old Economy Fails: But try as they will, the world still spins. And the future happens anyway. It just takes another shape. Their efforts to prevent necessary changes and corrections in the Old Economy – by flooding Wall Street with cash, for example – created a bubble in the New Economy. Most old-economy stocks are down for the year. In terms of gold – the only measure we trust – the old-economy Dow stocks have lost about 19% of their value since January. And of all the U.S.-listed stocks, only three are actually ahead of the game for the year.

New Economy Thrives: But look at what’s happened in the New Economy. The four leaders – Apple, Amazon, Microsoft, and Google – are worth about $6 trillion in total. There are only two countries in the world with a GDP greater than that – the U.S. and China. Amazon alone is valued at 43% of the entire S&P 500 Consumer Discretionary Index. And Tesla is now worth almost as much as America’s largest retailer, Walmart, even though it has only 5% of its sales.

The feds’ foolish shutdown and their clumsy attempts to stop a much-needed reckoning have only accelerated the shift from Old to New. The internet darlings – Zoom, Amazon, Netflix, etc. – sucked up the new money like an escapee from a dry-out clinic.

Obsolete: And suddenly, much of the old economy infrastructure was obsolete. The new economy doesn’t need so much office space – people are working from home. Nor does it need so many parking places – who needs them? Restaurant tables… airplane seats… big-city housing… cruise ships… theatres… And if people don’t commute to work, they don’t need so many automobiles, either. Or so much gasoline… (Exxon stock has been cut in half so far this year.)

And the old industries don’t need so many workers, either. The trend has been in motion for a long time – replace human employees with robots. But come the coronavirus… and factories had to shut down, because humans were afraid of getting sick. And coming back to work, they expect more protective measures. But no robot ever put on a facemask. Robots don’t strike. They don’t complain. They don’t demand equal pay… or fear the virus. They don’t need a lunch counter. They don’t expect overtime pay… or hazard pay… or nighttime bonuses. Or air-conditioning. They don’t take breaks. They don’t vote. And they don’t give the boss any lip.

So, when the feds try to buck up the old economy with more free money and below-inflation lending rates, what do employers do? Call back the old workers? Or hire electronic brains and machine-powered arms?

Poor Schmucks: The trend is so unmistakable that even the Robinhooders can see it. They take their government checks ($1,200… or unemployment), turn their backs on Ford (down almost 30% this year) and GM (down almost 20%), and buy Tesla (up 363%!). They think they’re joining the future, not fighting it. But the feds’ fake money has turned the future into such a speculative bubble that it is ready to blow up again – for the fourth time this century.

The poor schmucks… They lost their jobs in the Old Economy and had to move in with their parents (more young people currently live with their parents and grandparents than at any time since World War II). And now, they’re going to lose their money in the New Economy.

Zoom Towns: But it’s not all gloom and doom. Many people are older, richer… and moving to zoom towns. A dear reader, James P., comments: "Living in a remote mountain valley, about 90 minutes from Colorado Springs, our economy is booming. New housing construction is booked out through late 2021. Available houses are getting offers above asking prices and selling in as little as 6 days. And this is in a place with only two paved roads – the rest are dirt; only dial-up DSL internet; no traffic lights; no hospital; a tiny pharmacy that opened two weeks ago; and where jobs and homes are simply unavailable for the working classes. The economy here is booming. But only because people are abandoning the cities as fast as they can move."

Some people are saving money at twice to three times last year’s rate – and sitting pretty. Many of them are retired… or able to work (remotely) in the New Economy. "They made the transition from Old to New smoothly. And they’re too smart (or too poor) to put their retirement money in the go-go FAANG stocks." But even for them… the future may not be easy. Having dodged one danger and avoided the other… they are now set up like bowling pins… ready to be knocked down when the next big balls come rolling down the alley.

Killer Blow: The first will bring deflation and depression, as the New Economy blows up… and the Old Economy fails to recover. The second will be the killer, as the feds fight the depression with trillions in printing-press money. According to the Financial Times, 90% of the American public favors more “stimulus.” And probably 100% of Congress.

They want the money now. The future can wait. But when the future shows up, it will almost certainly be Hell on wheels – wiping out savings, reducing Social Security, destroying the economy and the “social contract”… and raising the cost of living for everyone. When will it be over? In 5 years? Ten? More? We don’t know. But when it is over, we predict there will be few pins left standing."

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