Death Star Headed for the US Economy

US economy crash

‘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 headed for a long, painful destruction.

So far, hardly anyone notices.

Today’s New York Times makes no mention of the Death Star headed for the US 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 selloff was ‘rate angst’ and ‘pricing in reflation’.

The rate angst comes from the well-advertised change in Fed policy. The US 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 6 July 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.

US 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…

Regards,

Bill Bonner,
For Markets & Money

Bill Bonner

Bill Bonner

Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America's most respected authorities.

Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind Markets and MoneyDice Have No Memory: Big Bets & Bad Economics from Paris to the Pampas, the newest book from Bill Bonner, is the definitive compendium of Bill's daily reckonings from more than a decade: 1999-2010. 

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