Tuesday, June 25, 2024

Bill Bonner, "The Aging of Empire"

"The Aging of Empire"
Since 1999, too, US government debt has risen by $30 trillion,
while the dollar - compared to gold - has lost nearly 90% of its value.
by Bill Bonner

Poitou, France - "Let's go over what we think we know. There are deep patterns in nature. They are not perfectly reproducible or predictable, but they are there. We don’t know exactly when or how we will die, for example, but we wouldn’t bet against it.

The stock and bond markets follow long patterns too. From high to low, low to high, often over many decades... we call it the Primary Trend. In the bond market, for example, bonds hit a high in the late 1940s. The next epochal high did not come until 2020 - almost 80 years later. Stock market highs, meanwhile, came in 1929... again in 1966... and most recently, in 2021.

Of course, we don’t know until later if these latest highs were the ultimate highs. Years go by, and it may still be uncertain. But in the bond market, it seems very unlikely that prices will hit their 2020 highs again in our lifetimes. In the stock market, on the other hand, prices have gone up... even surpassing their 2021 levels. What to make of it?

No Recovery: First, the picture is fuzzed by inflation. Nominal prices (in current dollars) have hit new highs. But the dollar has lost about 20% of its value since 2020. So, in real terms - adjusted to inflation - stock market prices have still not recovered.

There is also something very funny going on in the stock market. While a handful of tech wunderkind are hitting incredible new highs, most stocks are not. The Wall Street Journal: "The Russell 2000 index of smaller companies is down 17% from its November 2021 peak and has made no progress at all this year. In the S&P 500, which includes the biggest companies, the average stock is about where it was at the start of 2022, and more than half of the current constituents are down since then. Worse still, only 198 have managed gains this month, even as the index reached new intraday highs on 11 out of 13 trading days."

Our old friend, Chris Mayer, adds this comment: "It's been a strange year in the market: S&P is up 15% YTD, but that's mostly because of Nvidia and a couple of other tech giants. Most stocks have gone nowhere this year. At Woodlock House [Chris’s investment fund], we're up about 5% YTD. My competitive instincts don't like being so far behind the S&P but I think the S&P will have some problems with these over-valued, over-hyped tech stocks in the next few years. We will stay the course!"

Nvidia has gone up 30,000% over the last ten years. That’s something else we’ve learned... that investors can become ‘irrationally exuberant’ from time to time. Nvidia is now thought to be worth $3.3 trillion. But it is almost impossible that the company could ever earn enough money to justify that price. Yes, the company is growing fast. But its stock price is growing much faster. Either the sales pick up... or the stock price falls. Most likely, it will be the latter.

We’ve also looked at US markets as part of a larger pattern - that of empires. Just as we can never be sure where we are in the patterns of the Primary Trend, there is even more doubt about the empire. We know it will end, but we never know exactly where we are in the cycle.

And that picture, too, gets fuzzed by our own perceptions. People come to think what they need to think when they need to think it. Investors now believe Nvidia’s price - however absurdly high it is - will go higher. So must Americans come to see themselves as citizens of a great empire, destined to rule forever not merely over the 50 states... but over Ukraine and the South China Sea. Both thoughts set them up for big losses.

Led to Decline - Our guess is that the top for the US empire came right around the turn of the century. In gold terms, that was when stocks topped out - at more than forty ounces to the Dow. Now - again, measured in ounces of gold - the best of America’s public companies are worth only about half of what they were then. Since 1999, too, US government debt has risen by $30 trillion, while the dollar - compared to gold - has lost nearly 90% of its value.

If empires must decline, they must find the leaders who can help them do it. In that regard, the 21st century has blessed the US with the jefes it needed. George W. Bush did not have to squander $8 trillion on a silly ‘war against terror.’ Barack Obama and Ben Bernanke did not have to distort the whole economy, after the mortgage finance crisis of ’08, with bailouts for Wall Street and ultra-low interest rates for a decade. Donald Trump did not have to panic when the Covid virus appeared... and he and Joe Biden did not have to blow up the empire’s finances with another $15 trillion in pointless debt. These policy choices were almost preternaturally dumb. But they - like a lit cigarette at a gas pump - were just what the aging empire needed.

And here, with today’s final word, is the New York Post: "Pay up, America: Each of us owes $100K as national debt balloons to $35 trillion." Biden administration officials don’t care. They want to spend more. Already they are spending so much that they’re increasing our debt by a  trillion dollars every 100 days. President Donald Trump was no better: His administration increased our debt by almost $8 trillion. This will not end well. More to come..."

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