Following the Leader

From spouses to Fed Heads to Primary Trends, here's what to watch...

(Source: Getty Images)

Bill Bonner, reckoning today from Blenheim, England...

What are we doing in Blenheim, readers might wonder? We wonder too.

When a man is building his career, his wife and children are often dragooned into service… moving from place to place, keeping his dinner warm when he gets home late, ironing his shirts so that he will look more presentable in business meetings.

Later in life, after his career has peaked out and he has alienated his family, it is he who follows and they who lead. He attends weddings and christenings… family gatherings and birthday parties. And, when his wife is an ‘equestrian,’ he goes to Blenheim Palace Horse Trials.

More about that later.

Cultivating Failure

Oh my… looks like we were wrong about the Kherson offensive.  

It looked like a sure loser to us. But the media now says it is a great success. Some reporters and opinion mongers say it means the war has turned in the Ukraine’s direction… and may soon be over.

Which just goes to show – well, we don’t know what it goes to show. But there are so many things to be wrong about; choosing the right ones is the main challenge in life.

Here at BonnerPrivateResearch we are not always right. Sentimentally, we favor the lost cause, the diehard and the underdog – which is the losing side. But we don’t know in advance which side will lose.

And wars have a way of backfiring… and success has a way of cultivating failure.

How much better it would have been for the young Jerome Powell, fresh out of Georgetown Law Center (in our class!) to have taken up chasing ambulances. He could have put up a billboard along the DC beltway:

“Stay out of jail…even if you’re guilty. Collect $$$ – even if you have no case. Call Jay today!”

Instead, he made such a success of his career, after joining the Federal Reserve, that he now feels the weight of the whole world economy on his weak, rounded shoulders.

Humans can survive defeat… and learn from it; victory is a much bigger danger.

And Zelensky… the actor who once amused crowds by pretending to play the piano with his penis? We don’t know, but we suspect that the current narrative by the western press – describing him as if he had just captured Moscow – is subject to amendment, too.

As for the progress of the war… the effectiveness of the Russian air force… the morale of the troops… or the cleverness of the officer class – we have nothing to say. We are as lost in the fog of war as everyone else…

Time and Tide

Money is our beat. And all we can do, still subject to error, is to try to look for the Primary Trend… and see where it leads us.

In our markets, we think we see the beginning of the new trend, circa 2022. Bonds topped out, after a 40-year bull market, in 2020. Stocks topped out a year later. Now – if we’re right – we’re in for a long period of falling real values – for stocks, bonds and real estate.

The primary financial trend works together with a dark trend in the economy.  Growth rates have been falling for the last 20 years. Recently, US growth has been negative… meaning, we are going backwards, and getting poorer.  

Wage gains have been negative (adjusted for inflation) for the last 17 months straight. This calculation probably flatters the situation. In terms of the major costs in a person’s life – food, housing, and transportation – ‘inflation’ is actually worse than the feds say.  

Despite a slight decline in the Consumer Price Index last month, the cost of food is still going up at a double digit rate.

Houses, too. The average house sold for $161,000 in 1999. Now, it’s $428,000. In terms of the years you need to work to buy a house, it was 5.75 in 1999. Now, you’ll have to work for 7.5 years.

And fuel? It took less than 2 hours of work to fill a 20-gallon gas tank in 1999. Today, it takes 2 and a half.

We’re measuring these things in time, because time doesn’t change. An hour in 1999 was exactly the same as an hour today. And when you need to spend more time to earn life’s necessities, you are poorer.

Looking at a long term chart of wages, adjusted for inflation we see that real US earnings stopped going up in the early ‘70s. Today, an average American worker earns about the same as he did in 1972.  

The Road to Nowhere

Now, that’s a Long-term Primary Trend!…a trip to nowhere over half a century.

What should you have done, Dear Reader, if you had realized what a zero-sum hand the working class was holding in 1973? You should have joined the capitalists!  

The way to get ahead in the post-70’s America was to join the rentiers… you know, the people with capital. Yes, now it is obvious. After Richard Nixon freed the US dollar from its golden shackles, the place to be was where the new footloose dollars were going – to Wall Street.  

The financial trend meant that money went to money… and the money was in Wall Street. And all you had to do was to borrow a lot of money… refinancing every time interest rates went down – which they did (after 1980) for the next 40 years. Borrow $100,000 in 1980… buy the 30 Dow stocks… refinance… refinance… refinance.

By 2020, you are paying about $350 a month on your outstanding balance (still $100,000… which is now worth only $28,000 in 1980 money)… but your Dow investment is now worth $3.5 million.  

What luck! What a success! What a genius you were!

And now? The primary trend that pushed asset prices so high, seems to have turned around. That $3.5 million of 2020 is already down to $3.1 million… and it looks like it could go much lower.

What to do now? Tune in on Monday…

Regards,

Bill Bonner

Joel’s Note: Speaking of paybacks, we all know a great debt reckoning is coming due… that money borrowed from the future must eventually be paid back, and with interest. But what happens when your national credit card is bumping up against $31 TRILLION dollars outstanding, as is the case in the U.S. of A., and interest rates are on the march?

(For those keeping score at home, that’s about $93,700 in national debt per citizen… or $245,000 per taxpayer.)

Well, for one thing, interest payments start to look pretty hefty, both in absolute terms and as a percentage of total income. Rising rates, which push up the cost of borrowing, only add to that pressure.

“Net interest expense is $471 billion year-to-date (the government fiscal year ends in September),” Dan Denning wrote in a private note to the BPR team yesterday. “That makes it 10% of total government tax receipts.”

(Total receipts were $4,408 billion over the same period.)

Put another way, for every $10 you pay in taxes, $1 is going on interest payments to service the national debt. And there’s only one way it’s going from here…

Dan will have more in his Friday update later this afternoon. If you’re not already receiving Dan’s research, but would like to jump on the list, consider becoming a member today.