Insider Loot

The elites count their riches... as the public foots the bill

Bill Bonner, reckoning today from Paris, France...

It is gray and cold, here in Paris.  

Mon Dieu! The government here is even more absurd than in the US. French president Macron says he will “emmerd” those who don’t have the vaccination. We’ve seen that translated as “piss off” or “mire in excrement.” A better translation of emmerder is probably something like to “make your life miserable.”    

But imagine – what kind of society is it in which one group tries to make another group miserable?

In a healthy, consensual democracy, like a healthy marriage or a healthy business, nobody has a monopoly on the truth… and nobody gains much by trying to bully and threaten others. People didn’t need to be forced to take the polio vaccine, for example. When we were in grammar school polio was still a terrible disease… and the vaccine kept us from getting it. COVID, on the other hand, is not a threat to most people and the vaccines don’t keep you from getting it anyway. 

The Washington Post:

The omicron coronavirus variant will infect “just about everybody” regardless of vaccination status, top U.S. infectious-disease expert Anthony S. Fauci said Tuesday.

Does vaccinating everyone really make sense? The issue deserves a contrary argument and an honest discussion. It is opposition that reveals the best way forward, not submission. One side puts forward an idea. The other lets him know what a moron he is. From this exchange of ideas and opinions, a consensus emerges.

But without the yang, the yin spins out of control… without the immovable object, the irresistible force is lost in space. Alas, in France as in America, the elites conspire to suppress alternative opinions… and the servile press asks no questions. Instead, it gives out the party line. Voters either go along… or else!

Back in the US…

Who asked any questions as the Fed lowered interest rates below the level of consumer price inflation? Who objected when it ‘printed’ more than $8 trillion of new money since 2000… or raised the alarm as the feds added more than $23 trillion to US debt?

And now…inflation is officially running at a 7% rate. Romaine lettuce, reports Bloomberg, is 61% more expensive than it was a year ago. A CNN headline:

Analysis: ‘It’s getting worse every time’: Inflation concerns could spell trouble for Democrats

At today’s inflation level, if you buy a 10-year US note, you get a real yield of about MINUS 5%. Put in $1,000. A year later, you’ll have $950.

Alert readers will notice that this is not a good way to build wealth. You can’t lose money on an investment and make it up by doing more of it. You have to do something different.

Which is why yields on the Fed’s benchmark bond – the US Treasury 10-year note – are rising. Investors are looking for the exits.  

And if yields continue to rise, which seems likely, it creates a big problem for borrowers. They will have to refinance their mortgages… their bonds… and their loans… at higher rates (30-year mortgage rates hit 3.45% yesterday, the highest since March 2020; they were 2.65% a year ago).  

Which is when they are likely to wonder if borrowing was such a good idea in the first place…. and whether, when the Fed was getting the whole economy hooked on ultra-low interest rates… someone should have said something.   

Nobody did.  

Instead, the great and the good – seeing the coast was clear – went right along. And the whole system, with no real opposition or means of correction, became self-serving and corrupt.  

The press acted as if Bernanke, Yellen and Powell knew what they were doing… Congress became a sinecure for partisan hacks… The rich counted their money…($30 trillion in stock market gains since 2009)… The public was addled by Facebook and the evening news, punctuated by one scary distraction after another… And the printing presses at the Fed ran night and day (no need to raise taxes…or borrow honestly from savers!)…   

And now… the Entire Elite Establishment locks arms in favor of more money and power for itself…at the public’s expense, of course…

…and what can stop it?  

Regards,

Bill Bonner

P.S. Fed Vice Chair Richard Clarida announced his resignation on Monday. We don't know him personally. But we do know that in February 2020, right before the Fed went 'all in' supporting stocks during the pandemic, he made two prescient moves. He sold stocks (through an investment in a fund) on the 24th of February. And then he bought them back on the 27th (through the same fund).

Genius or rascal? You decide. But that was one day before Fed Chair Jerome Powell revealed to the public that the Fed 'would act as appropriate to support the economy.' 

Clarida is the third Fed member to resign in recent months. Boston Fed President Eric Rosengren announced his retirement late last year after his pandemic trades came under scrutiny. So did Dallas Fed President Robert Kaplan.

Is anyone surprised that the consummate 'insiders' were actively trading the stock market? On the one hand, no. The whole point of being an 'insider' is to benefit from the policies you make. And for money printers, the closer you are to the money – you're pretty close when you get to SET the price of money – the more you benefit from it. 

But some people might be surprised that prior to THIS WEEK – the Fed's trading policy for governors was voluntary. And it didn't prohibit trading in individual stocks (only the stocks of the banks the Fed governs indirectly... and again that was only voluntary). Jerome Powell told the Senate Banking Committee earlier this week that the new policy was 'very far along' and 'nearing completion' and would only permit pre-approved and pre-scheduled trades in 'broad based' investment vehicles like mutual funds.

And now what? Now that they can no longer (theoretically) benefit from insider trading, will Fed officials let the market 're-set' to a lower valuation? 

Our new Investment Director Tom Dyson and our old co-author Dan Denning have been debating this privately. Tom, pragmatically, believes the Fed will have to support the market at some point, even indirectly. The US government has too much debt to refinance. It can't afford higher interest rates. The Central Bank's job is to keep rates low. This puts a 'floor' under stock prices – although some stocks, the ones with real assets and real earnings, will be a lot more attractive to trend-following investors than the go-go growth stocks of the last few years.

Dan isn't so sure. He thinks the Fed's credibility and independence is on the line. And it's an election year. The Fed can't bail out investors and billionaires in the stock market while beef prices and energy bills are through the roof for the Middle Class. In other words, the Fed has to be seen fighting inflation now, which means it may tolerate bigger stock market declines (and raise interest rates higher and faster) than investors thought possible.

For the Fed to keep control of the money printing system, it has to get inflation under control. And Dan thinks that right now, if it had to choose between much lower stock prices or much higher consumer and producer prices, it will choose a stock market crash every time.

Who's right? Dan? Or Tom?

Stay tuned!

Meanwhile, paid readers can follow along with Tom and Dan’s subscriber-only research… including their specific investment ideas… by joining us, here…