This Is the Start of the Sell-off, Not the End

This Is the Start of the Sell-off, Not the End

Is Donald Trump broke yet?

We don’t know. But at the end of the first quarter, investors held about $24 trillion in stocks. Stock prices are down about 10% since then…leaving the rich $2.4 trillion less rich.

Government bonds have generally gone up. Junk-grade corporate bonds have gone down.

And real estate?

It takes longer to react. Real estate is not ‘marked to market’ immediately. Buyers and sellers discover prices slowly.

Phony wealth

The ‘wealth’ created in Stage III of the US credit boom was largely phony. It came as the Fed dropped the price of money to zero.

Underpriced credit gave the gamblers, schemers, and cronies the wherewithal to manipulate markets and bid up their own assets.

But now…

All that whining and complaining about how the ‘One Percent’ were getting rich…

All those calls for more regulation and redistribution to solve this ‘problem’…

All that claptrap about how capitalism always made the rich richer and the poor poorer…

All a total waste of time and a fraud. Capitalism is innocent. This was an inside job — a crime committed by the cronies and their enablers in government.

It was their way, not only of giving themselves trillions of dollars of other people’s money, but also of holding onto the power, status, and wealth they’d accumulated over the last three decades.

Politicians had no more interest in solving this ‘problem’ than a wolf wants to solve the problem of too many fat sheep. But don’t worry. A real bear market will take care of it!

Policy props

The rich got richer because the fix was in…

Since 1987 the Fed has been committed to using its power to prop up asset prices.

From an economic perspective, it makes no sense. Central banks have no way of knowing what assets should be worth. Nor do they have any real reason to want to see stocks be more expensive.

As Austrian School economist Friedrich Hayek made clear, economic knowledge is dispersed among individuals, not among government technocrats.

Through the workings of free markets, individuals ‘discover’ asset prices; the professors of finance appointed to the Federal Open Market Committee are not supposed to rig them through market interventions.

But like marijuana in college, everybody does it. Here comes the People’s Bank of China, working hard to rig the markets of the Middle Kingdom. Reports Bloomberg:

China fell back on its major levers…cutting interest rates for the fifth time since November and lowering the amount of cash banks must set aside.


The one-year lending rate will drop by 25 basis points to 4.6% effective Wednesday, the Beijing-based People’s Bank of China said on its website Tuesday, while the one-year deposit rate will fall a quarter of a percentage point to 1.75%.

Markets discover what a stock is worth based on the expected earnings of the company. Goosing up stock prices doesn’t change that. So, the whole thing is a scam.

But the cronies love it. With the federales propping up the market, the rich — the owners of most of the world’s financial assets — could take chances and grow richer.

They figured they couldn’t lose…

Mr Trump’s fabulous fortune

That’s how ‘The Donald’ got so rich — making big bets on rising property prices.

Trump has gone bankrupt four times. You’d never want to trust him with your personal finances. But he may be just the man to head the US government. He’s got the experience we need in Washington!

Trouble is, just when Americans are looking for someone with the Midas touch, Mr. Trump’s fabulous fortune may turn from gold to dross.

His public disclosures are thin. But his business practices — big bets, high leverage — are well known. At the bottom of the last crisis, he was said (by us) to be the ‘poorest man in the world,’ with a net worth of MINUS $100 million.

Who knows what will happen when we get a real crash. Mr. Trump might have to declare bankruptcy a fifth time!

When this sell-off intensifies, Mr. Trump, Wall Street, and the One Percent will lose money.

The feds’ fictitious capital will go back where it came from — nowhere.

The rich won’t be so rich…the poor (relatively speaking) won’t be so poor…and all the do-gooders kvetching about the unfairness of it all can go back to updating their Facebook status.

Regards,

Bill Bonner,

For Markets and 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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