We have begun our long perambulation.
First stop: Nicaragua. From here we’ll go to São Paulo, Buenos Aires, Salta, London, Ireland, France, Portugal, Italy, and Switzerland.
The trip will take us most of the rest of the year.
We are here hosting our annual Bonner & Partners Family Office meeting. It’s all about money: how to get it, and how to hold on to it.
View of the Pacific Ocean from Playa los Perros
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‘The money is the easy part,’ explained one speaker. ‘The family is much harder.’
‘Amen to that, brother!’ listeners seemed to say.
Our own experience is limited. Still, from what we can tell, there is an infinite variety of ways to make a fortune. And to lose one. But, for great fortunes, the losing ways tend to have a common denominator: the family fails.
There’s nothing like family money to stir up jealousy and resentment. The next thing you know, you’re in court.
‘You don’t understand, Bill,’ said a friend. ‘Envy, hate, spite…they’re more powerful emotions than money. A lot of people would rather see the lawyers get the money than their good-for-nothing relatives.’
Meanwhile, there are powerful emotions at work on the national level, too…emotions that have little to do with money.
Stocks lost about a third of Tuesday’s gains [on Friday]. But most investors believe President Trump will be good for stock prices.
Let’s go back to basics…and try to understand what is going on.
The power of a government rests on three prerogatives: it can kill people; it can take their money; or it can just force them to do things they wouldn’t do otherwise (win-lose deals).
Killing people is often popular. People don’t understand economics or finance. But they understand when a leader smites their enemies.
But money is our beat. And killing people will not put more of it in Americans’ pockets.
How about using the power of government to take money away from people? That is a classic win-lose deal. As we’ve explored previously…win-lose deals don’t make people generally richer. But they can make some people richer at other people’s expense.
Win-lose deals can be a crowd pleaser, depending on whom you’re taking the money from. Trump’s tax plans call for lowering the burden on the few — the rich. Corporate taxes are to be cut, which could be good for stocks.
But wait… Someone has to pay.
Trump campaigned as the candidate of the ‘little guy’. But it will be the little guys who pay, through ‘border adjustment’ taxes, through inflation, or through fake-money transfers.
Of course, these non-rich taxpayers are also major consumers. And consumers are the people who buy corporate products. If they have less money to spend, corporate sales and profits should decline.
Besides, the ‘good’ a government can do is inverse to its taking ability; the more it takes, the less people have left…and the less real ‘good’ it does.
Trump’s tax plan is supposed to be ‘revenue neutral’…meaning it won’t blow out the deficit.
But shifting tax burdens from one group to another (taxing some less and others more) takes time…invites uncertainty…and leaves the economy with the same net spending power.
And although the tax plans are supposed to be revenue neutral, the spending plans are not.
The feds will need money to pay for a 10% increase in military spending…and as much as $1 trillion for infrastructure boondoggles.
Those outlays represent real resources taken out of the rest of the economy so that they can be used for projects the feds (aka the Deep State) think are important.
Building ships and parking lots — financed with fake money — cannot lead to a real boom.
What does that leave?
Well, there is still the possibility that Team Trump will reduce the burden of the win-lose deals in other areas.
The Environmental Protection Agency, for example, might do less damage if it were defunded. The State Department, too, is slated to be cleaned out.
There’s also the Bureau of Land Management…and a few other agencies.
Trouble is, even if they really do get streamlined, it’s still small potatoes.
The big potatoes, in terms of the deficit, are (1) entitlements and (2) the military. And the net effect of Trump proposals will be to increase them, leaving less for the rest of us.
So unless ‘The Donald’ can perform some miracle akin to multiplying loaves and fishes, there will be no relief for the average voter…no real boom…no more jobs…nor higher incomes…
But politics is a magical mystery tour of human emotions. There’s more to it than just money. There’s spleen as well as brain…and bitterness as well as generosity.
And fortunately for Donald Trump, there’s more to a nation than just its economy.
Peronism wasted the Argentine economy, but ‘Peronistas’ are still popular. Robert Mugabe is still in power in Zimbabwe after wrecking its economy over the last three decades. Nicolás Maduro is still running things in Venezuela.
And the Russians saw their incomes go down for 70 years before they finally turned out their rulers (and then, only partially). Even then, many still had cherished photos of comrade Stalin on their kitchen cupboards.
For Markets and Money, Australia