"Coast Unclear"
The winds howled, bonds sank
and the wars and stupidity continued...
by Bill Bonner
Paris, France - "The wind howled. A light rain fell against the windshield. It was dark as pitch. A fine night for an ocean voyage! Yes, we’re on our way back to the USA. The trip began last night as we drove up to the ferry at Cherbourg to take the Stena Line back to Ireland. This time of year, ferry service is reduced to a few hardy ships with a few intrepid travelers. There was no line waiting to board (in the summer, it can take hours). And once on the ship, we found it almost deserted…eerie, like an empty hotel.
Curiously, the only other cars getting on the ferry had Ukrainian license plates. The Irish have welcomed Ukrainians with open arms, sympathizing (perhaps to excess) with their plight. By contrast, they have not been very ‘solidaire’ with the Israelis. Maybe they have a race memory of when they were Palestinians…massacred, dispossessed, and turned into second class citizens in their own country by English invaders. For whatever reason, the Irish tend to side with the Palestinians.
We are still on the ferry, with limited internet service. But we turn to the financial news.
“More Bubble”: The US stock market is delighting in what appears to be the end of the Fed’s tightening cycle…and a big drop in inflation. Barron’s reports that…"The Stock Market Just Had Its Best Three Weeks Since 2020." Even the S&P 500 tech sector is back…up 48% this year, more than twice the S&P 500 itself. But we see no reason to change our outlook. In this century, it took $27 trillion worth of net federal stimulus, financed on credit at ultra-low rates, to bring us to where we are. It seems extremely unlikely that the trends of the last 23 years can continue now that the cheap credit has been cut off.
And amid all the diamonds of good news, we find some rough gravel. Manufacturing, industrial production and retail sales are all in decline. And US debt…we can hardly keep up with it. It was just last week that we reported a $33.5 trillion national debt. Now, it is $33.7 trillion, with the interest soon to top $1 trillion for the year.
The top of the credit cycle (the high water mark for bonds) came in July of 2020. Since then, bond investors have lost about a third of their money. We’re in a different Primary Trend now. While it is impossible to know exactly what it will bring, ‘more bubble’ is probably the least likely. Instead, the dip in inflation rates will probably prove ‘transitory.’ Most likely, too, the rise in stock prices will prove disappointing. And most likely of all, the moronic things our leaders are doing – deficits, military meddling, sanctions, tariffs, etc – will bring the kind of trouble they usually bring… inflation, poverty and war.
Eternally Optimistic: But this is a long term forecast. In the weeks and months ahead, anything can happen. So, we will keep our eyes on the ball, our shoulders to the wheel…and our thinking caps firmly on our heads…And what luck! We have an important ball to keep our eyes on - something for the history books.
Eternal optimists, we see in Milei’s victory a potential save for the Western democracy. In Argentina, universal suffrage was put into place early in the 20th century. Not only were all adults allowed to vote…they were required to do so. A few years later, the downhill slide began.
Requiring people to vote meant that a lot of people who might otherwise have gone about their business without harm to the public weal, had to pay attention to politics – at least for long enough to figure out which side of the bread had the butter on it. This simplified the job for political hustlers. Each vote was equal to every other vote, so they went after those voters who would sell their votes most cheaply – the urban, often unionized, ‘leftist’ proletariat.
A Matter of Principle: People are neither always good, nor always bad, but they are always subject to influence. And the promise of free money was decisive. Thus, did the teeming masses elect one populist big-mouth after another…and thus did the politicians inflate the currency to cover the costs of their own corruption. And then, finally, on Sunday, after 7 decades, the appeal of ‘something for nothing’ lost its purchasing power. That is what turned the election to Milei. He promised nothing. And as far as we know, it is the first time in history that a popular democracy has voted to reduce the power of government itself.
(You might say that voters wanted less government in the US when they elected Ronald Reagan in 1980…and again in 2016, when they elected Donald Trump. But Reagan believed it was important to increase military spending to counter what he saw as the threat of communism. Trump expanded both social and military spending shamelessly. Only Milei has vowed to cut back government as a matter of principle.)
Again, where this will lead, we don’t know. But it is worth watching…"
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