Joel Bowman, checking in today from Buenos Aires, Argentina...
“They blew up the greatest speculative bubble of all time...”
So began Investment Director Tom Dyson’s research note to Bonner Private Research members earlier this week...
We’ll return to Tom’s observations in a moment... but first, let’s check in with the markets. It was another rough and tumble week, dear reader, with plenty of thrills and spills for the brave and the brainless.
Speaking of which, woe to he who follows the headline news! Here’s a smattering from the sages in the MSM over the past few days...
“Dow closes more than 350 points higher...” ~ CNBC (Wednesday)
“Dow falls 275 points on jobless claims...” ~ Investors Business Daily (Thursday)
And, our personal favorite, courtesy of YahooFinance (on Friday):
“Why you should stop caring about the Dow Jones Industrial Average...”
“…and learn to love the bomb,” we might have added.
The major indices ended the week mixed, with the Dow slightly lower, by 0.15% and the S&P 500 and Nasdaq higher by 1.6% and 3.3% respectively.
The Dow, S&P 500 and Nasdaq are up 2.4, 8.7 and 15.6% year-to-date.
Meanwhile, gold too has been up and down like a cheerleader’s... acrobatics. The Midas Metal popped $30/oz on Tuesday... and another $30/oz on Wednesday, both moves on strong volume. So far, so good...
Then, just when the psychological $2,000/oz threshold was within reach... Big Au fell $40/oz on Thursday... and $50/oz on Friday, to end the week down $70. (These are rough numbers, as you see.)
The spot price was last seen hovering around $1,865/oz, still up over 6% for 2023.
It was a tough week in the energy markets, too, as investors fretted about demand from China and substantial US inventory builds (coming off a pretty dry base, it must be said). A barrel of black gold (WTI) goes for around $73 and change.
And finally, over in the crypto world, top dog Bitcoin smashed through the $24,000 mark on Thursday, before “settling” around $23,300 on Friday. (“Settling,” that is, to the extent that a currency which has appreciated over 40% year-to-date can be said to have “settled.”)
But all eyes this week were on Jerome Powell and the Fed’s decision to raise rates for the 8th time since March, this time by a quarter of a percent. Mr. Powell assured pundits that it was too early to “declare victory” over transitory inflation just yet...
“We will need substantially more evidence to be confident that inflation is on a long, sustained downward path,” said he.
Toggling between Mr. Powell’s remarks and the price action in the market, we imagined the following conversation...
Investors: “So... a rate cut coming soon then, eh?”
Mr. Powell: “Given our outlook, I don’t see us cutting rates this year...”
Investors: “OK... then howzabout a pause?”
Mr. Powell: “Did you hear what I just said?”
Investors (to each other): “Whatevs. The man has no idea what he’s talking about. Buy!!!”
And that, dear reader, is how you get speculative bubbles and the madness of crowds… and how you learn to stop fearing and love the bomb.
Which brings us back to Tom’s research note to BPR members from Wednesday. Here’s a key passage...
“They blew up the greatest speculative bubble of all time and now that bubble wants to deflate. There’s so much malinvestment. Think of all the terrible decisions businesses made when $18 trillion of bonds were trading at negative yields and the Fed was saying, in 2021, “we aren’t even thinking about thinking about” raising interest rates.
It all needs to be liquidated. Giant losses need to be realized. Huge mistakes need to be corrected.
So we’re now in a bear market. That’s just the nature of artificial, credit-driven booms. They end. Bull markets turn to bear markets.
Meanwhile, the U.S. government is the most indebted it has ever been. Its spending is out of control. It’s made endless promises it’ll never be able to keep.
A bear market will put unbearable stress on government finances as tax receipts crash and expenditures balloon.
(Source: US Bureau of Economic Analysis, fred.stlouisfed.org)
They should have kept something in reserve for a rainy day, but they didn’t. They just borrowed and spent without any thought of ever having to pay it back.
You can see the problem. A bear market will destroy the government’s finances. And the first place this problem manifests itself is illiquidity in the government bond market, which is what we started seeing last year. (The government’s gargantuan appetite for dollars can’t be met by investors at prevailing interest rates.)
The solution, from the government’s perspective, is currency debasement. Effectively, what debasement does is push losses onto the currency market and off nominal prices in the bond and stock markets. It socializes losses. It turns the dollar into a release valve. It puts a bid under nominal stock, bond and real estate prices.
And that’s what we’ve been calling inflation volatility or “inflate or die”. It’s the vacillation between deflation and currency debasement by the Feds, as they try to keep the government solvent during the collapse of the greatest ever debt bubble.
It goes without saying (we hope) that “what’s good for the government ain’t necessarily good for the people.” So when Tom says the solution “from a government’s perspective” is currency debasement, that’s no solution at all for working Americans. Quite the opposite.
So how do you protect your purchasing power and even build capital during “the collapse of the greatest ever debt bubble”?
Tom and Dan have devised a strategy to address exactly that conundrum. For most of 2022, it meant staying in “maximum safety mode.” (Cash and precious metals in roughly equal parts, plus a series of “tactical trades” aimed at capitalizing on market dislocations along the way.)
Following their guidance, BPR members were able to avoid the much of the fallout from the worst year for a balanced 60/40 portfolio in… ever. The average closed position came in close to 9%… while the S&P 500 was down roughly twice as much. The ongoing Trade of the Decade, meanwhile, is up well over 100%, even with the recent selloff in energy related stocks.
Of course, 2023 brings with it new challenges. And new opportunities for those who know how to “zig” when the mobjority “zags.”
If you’re not already enjoying member’s benefits but would like to join Bonner Private Research, now’s the time to get on board. Find a membership program that suits you, here…
And that will do us for another weekend, dear reader. We’re off tomorrow (Dan has a special message for you) but will return Monday, alongside Reckoner in Chief, Bill Bonner, for your usual weekday missives.
As always, feel free to share our work if you find it valuable. And whatever you’re up to this weekend, be good… or be good at it.
Until next time...
Cheers,
Joel Bowman
Thank you for reading Bonner Private Research. This post is public so feel free to share it far and wide...
Who owns the $31 trillion in US government debt? I found the following article useful for answering this question: https://www.thebalancemoney.com/who-owns-the-u-s-national-debt-3306124. More than half of the debt is owed to US retirement and pension funds,, government (Social Security, Military Retirement) and private. I suspect that much of the one quarter of the debt owed to foreign governments is to retirement funds for their citizens. If you are a current retiree or close to retirement, a default on the US debt will hurt you the most. Higher interest rates, courtesy of the Fed, are good for the retirement plans as long as no default happens. My two cents...
Yep! Another daily sprout of fake news for those who follow it. Don't be one of the local idiots who fall for the BS!
We all know the American Experiment is over, and the Communist have won, but how we care for our families will determine the final end game for each.
Our host are very comfortable in the lives they lead, and they explain that constantly being on the move is a positive thing.
All your wealth and hard work will be meaningless unless you Organize within your Community to secure yourself and Family.
Guns, Ammo and Family are what made America great, and will continue until you give up...as history has proven...God Bless America, and those who fight for her!!!
Who owns the $31 trillion in US government debt? I found the following article useful for answering this question: https://www.thebalancemoney.com/who-owns-the-u-s-national-debt-3306124. More than half of the debt is owed to US retirement and pension funds,, government (Social Security, Military Retirement) and private. I suspect that much of the one quarter of the debt owed to foreign governments is to retirement funds for their citizens. If you are a current retiree or close to retirement, a default on the US debt will hurt you the most. Higher interest rates, courtesy of the Fed, are good for the retirement plans as long as no default happens. My two cents...
Yep! Another daily sprout of fake news for those who follow it. Don't be one of the local idiots who fall for the BS!
We all know the American Experiment is over, and the Communist have won, but how we care for our families will determine the final end game for each.
Our host are very comfortable in the lives they lead, and they explain that constantly being on the move is a positive thing.
All your wealth and hard work will be meaningless unless you Organize within your Community to secure yourself and Family.
Guns, Ammo and Family are what made America great, and will continue until you give up...as history has proven...God Bless America, and those who fight for her!!!
Good luck all, and