Gear up for a hot August!

Thursday, 27 July 2023 — South Melbourne

[8 min read]

Dear Reader,

If you think the world’s chaotic already, wait till next month.

It mightn’t feel like it here in Australia. Maybe the unseasonably cold winter is keeping things under the lid.

Yes, there’re increasing tensions here with ‘The Voice’ campaigns.

But by global standards, it’s been quite civil. It’s a sharp contrast to the open conflict in Ukraine, France, the Netherlands and other parts of the world.

For our sake, I hope things here won’t get worse. It feels like society is hanging by a thread everywhere. It only takes something small to plunge everything into disarray.

Anger simmers and dissatisfaction boils over

There’s no denying the quickening pace at which events are developing.

I can’t say it enough to hone in on the point.

Think about the latest civil unrest in France and the Netherlands over their Government’s policies to impose further hardship upon their people.

In the case of France, it was about raising the retirement age.

Meanwhile in the Netherlands, it was about limiting the use of fertilisers that would threaten the livelihood of farmers. And disagreement between the parties in the coalition government over immigration limits became the final straw that caused its collapse.

Tensions boiled over in these countries, to the point where it’s made the headlines. Similar things are happening in the US, UK, Germany, Italy, and elsewhere. It’s clear that the people are divided, and both proponents and opponents are willing to march and show their disapproval.

For many years, most Western governments have run massive budget deficits. This is driven by an ageing population, a service-based economy rather than one based on manufacturing, more government handouts (especially during the Wuhan virus outbreak), and politicians promising more benefits to secure the people’s votes. Consequently, the government increased taxes on businesses and households to make ends meet.

A hot-button issue has been the impact of man-made activities on the environment and climate. Proponents argue that certain choices we make as a society could devastate future generations. This has led to proposals to alter our lifestyle, some of which include significant spending to develop new technologies like renewable energy, battery technology and smart meters. And as you’d expect, these are often subsidised by governments with taxpayers bearing the burden.

From a philosophical perspective, these policies sound reasonable, as it’s for ‘the greater good’. Everyone should theoretically do their part to make the world a better place.

So why the pushback from the people?

When reality bites

Human beings are by convention creatures of habit. We seek comfort, are risk-averse and dislike change. We can tolerate discomfort and hardship to a certain extent.

Once we reach the threshold where something becomes unbearable, we’ll act.

So, people around the world are now rising because they’ve reached their limit.

But what limit? The ability to make ends meet.

These past few years, the general population has stomached much unfair treatment and observed rampant hypocrisy. They’ve seen how their leaders and celebrities travelled overseas and partied while they were in lockdown, which ruined their livelihood — especially if they ran a small business. Their pay packets have bought them less while their leaders enjoyed higher-than-inflation pay rises.

The extended period of a low or zero interest rate environment ravaged society by bringing economic woes such as wealth inequality, inflation, runaway asset prices and skyrocketing debt — both public and private.

In the short term, debt and inflation can push asset prices up creating a ‘wealth effect’ that gives people an ego boost. Let it persist, and it creates a yawning divide between those who own assets and those who don’t.

This is what most Western governments have done. Corporations and wealthy individuals exacerbated this by lobbying for changes that benefit them…or inoculating them when it isn’t in their best interest.

Think about how the Green agenda has led to unequal treatment between the wealthy and the ordinary people. Corporations stand up for these policies to receive government subsidies and tax breaks while the people bear the costs, especially on their utility bills.

There’re some examples that are downright absurd. Recall last year how European Governments encouraged their people to use less heating during winter and shower less during summer? This was part of a strategy for damage control after their wager to sanction Russia to save Ukraine backfired. Russia cut off their supply of natural gas causing them significant inconvenience.

But earlier that year, they’d passed exemptions from the carbon pricing scheme for those who owned yachts and corporate jets! Talk about a blatant ‘up-yours’ to the people!

It’s no wonder they’d take to the streets to express their outrage!

Protect your wealth and capture opportunities like the central banks and the elites

Let me be clear on one thing…

I don’t advocate taking to the streets and risking your safety to fight the authorities.

In my view, they no longer exist to serve society and act in our best interest. That went out the window in 2021–22 when we saw the way they treated the lockdown protesters. It was a stark contrast to how they responded to the mob violence in the 2020 ‘summer of love’.

I don’t put it past them using strong-arm tactics. Not only that, but they’re also now attempting to control the narrative. Going forward, they’re looking to pass a law to punish news outlets or social media platforms for not removing dissenting opinions and posts.

Despite the odds appearing stacked against us, I see a silver lining to this.

Yes, it’s hard for you to imagine. Here’s why.

All these point to them on their last legs. They’re now imposing outright censorship because they lost the narrative once Twitter fell to Elon Musk last year.

I’ve written about how they’ve shredded their credibility via a prolonged campaign to push an agenda rather than faithfully reporting truth and facts.

Don’t expect them to capitulate, nor that they’d collapse anytime soon though.

You must therefore protect your wealth first, then reach out and help others in need.

There’s one asset that has retained purchasing power for the longest time — gold. It’s real money. Central banks and the elites are buying it at record quantities. They know what’s coming and they’re desperately hoping that it’d help them prevail as they lose control.

You’d do well to follow what they do in this case.

Find out more about where you can buy gold with my investment service, The Australian Gold Report. I also will show you how you can build a portfolio of established gold producers to leverage the power of gold and build your wealth.

August is going to be a hot month. Don’t get caught up in the mess. Instead, identify the opportunities to shore up your wealth so you can prevail over the confusion and chaos.

God bless,

Brian Chu,
Editor, The Daily Reckoning Australia

Dear Reader,

Today, we look at distortions.

The US economy is transitioning…it is affirming its true nature…or distorting it.

So, let’s not misidentify it!

From a 40-year period of falling interest rates and rising asset prices…it is moving towards a long trend of higher real rates and lower real asset prices. Most likely, the movements will be distorted by inflation. That is, the dollar is likely to decline in value making the actual price trends hard to decipher.

Meanwhile, the great Empire rolls over…degenerates, declines…the genders get reassigned…the pronouns get scrambled…reparations get passed out, or not…the deficits get bigger…growth gets weaker…free speech is suppressed…the military/industrial/spook/university/pharmaceutical/medical/press complex gets richer…the middle class gets poorer…the new digital money replaces the dollar…the Federal government goes broke…and everything is distorted by fraudulent money and the fake media.

But wait. It’s not that simple!

Familiar faces

Yesterday, Guy came over to dig a trench for an electric line for a new apartment.

Guy is short, muscular, tanned….in his 60s. We’ve known him for at least a quarter of a century. But we’ve never seen him without a small cigar in his mouth and a slightly rakish look.

‘Bonjour Monsieur Bonner,’ he greets us rather formally.

But when he sees Elizabeth, his arms stretch out. He embraces her and addresses her with the informal ‘tu’…which is shockingly familiar.

‘You are looking as “mignone” as ever,’ he continues, giving her a big hug.

‘You might need to get your eyes checked,’ Elizabeth was quick with a comeback.

There is always a bit of flirtiness in the French countryside. Perhaps it comes from the lack of other distractions. Without it, men feel less manly…and women are disappointed.

As for today’s non-binary farmhands…we don’t know how they roll.

We’re here in France where we’ve spent summers for the last 28 years. According to the news, southern Europe is roasting. But here in central France, we wear sweaters…it is rainy and chilly. Do reports on the summer weather patterns give us an accurate view? Or do they distort it?

We live in a house that was once the centre of a large farm. The house is big…if a bit ramshackle. And there are many outbuildings that once served as barns, workshops, storage areas, living quarters, stables, poultry houses, a bakery — everything that a farm community needed in the 19th century. Once there were many families living here. Now there is only ours. And our family too has been greatly reduced. The children have grown up. They have their own careers and children of their own. And our aged relatives — who lived with us — have passed away.

A confusing mix of signals

Often, Elizabeth and your editor are here alone dwarfed by history, the house itself and its surroundings. But in the summer, we encourage the whole family to come for a vacation. And so, they come — children…grandchildren…nieces…nephews…friends…friends of friends…and sometimes a few people of uncertain provenance.

Suddenly, the place comes alive again…as it was when our own children were little. And then we discover — we don’t have enough space for them all!

So, your editor has set to work, turning a loft in one of the empty outbuildings into an apartment. (More about that anon.) And that too brings back the old days with all the noise and commotion of renovating an old house. Guy with his digger…an electrician with his drill…hammers hammering…plumbers a-plumbing…and six geese a-laying. What a delight!

But enough idle chit-chat. Returning to the US economy…

We are looking at distortions — a confusing mix of signals. Some tell us that the old economy, 1982–2022, is still doing its thing. Others tell us that things have changed. And some don’t know what they are trying to say.

A teary ending

Let’s begin by looking at those that signal trouble ahead.

Charlie Bilello:

‘The Leading Economic Index declined in June for the 15th month in a row, the longest down streak since 2007–08. The Conference Board is still forecasting a recession from Q3 2023 to Q1 2024 driven by “elevated prices, tighter monetary policy, harder-to-get credit, and reduced government spending.”

‘US Industrial Production is already seeing a slowdown, with growth turning negative on a YoY basis for the first time since February 2021.

‘Additionally, US Retail Sales have increased less than 1% over the last year and after adjusting for inflation have declined on a YoY basis for eight consecutive months.’

Yahoo Finance reports that…

‘John Hussman is doubling down on his dire outlook for US stocks…

‘Stretched equity valuations suggest that the S&P 500 index would be required to plunge by as much as 64% for the market to return to more balanced conditions, according to the asset-bubble expert who successfully predicted the stock routs of 2000 and 2008.

‘“The present combination of historically rich valuations, unfavourable internals, and extreme overextension places our market return/risk estimates — near term, intermediate, full-cycle, and even 10–12 year, at the most negative extremes we define,” Hussman, president of the Hussman Investment Trust, wrote in a note. “Yes, this is a bubble in my view. Yes, I believe it will end in tears.”’

On the other hand, yesterday brought another (barely) positive day of trading. If there is trouble ahead, the stock market doesn’t see it. But then, it never does. It is always at the very peak of the day that the evening begins.

Overall, the stock market indexes are now within whiskers of setting new highs — in nominal terms. We add that ‘in nominal terms’ because already, the price structure has changed a lot over the last couple of years, distorting real values.

Let us say Americans pay about 10% more for consumer goods and services than they did in 2021 when the Dow boomed over 36,000. In order to stay even with inflation, the Dow would have to go to nearly 40,000.

That’s what inflation does to everything; it distorts the truth. It lies. It prevaricates. Investors think they are making money, but they are just keeping up with rising prices.

Unmolested spiders

Our guess is that whatever else is happening, the distortions will become more complex in the years ahead. The much-anticipated recession hasn’t happened yet. But keep your shirts on — please! Most likely, the economy will begin to walk backwards later this year. And most likely, the recession will be deeper…and longer…than people expect. This will prompt the Fed to begin cutting rates rather than raising them. And that is where the real distortions and confusions begin. Prices will go up. But real values will fall. It will be hard to know if you’re getting richer or poorer…coming or going.

Probably the most confusing market right now is the US housing market. While other prices are coming down, housing prices are still near an all-time high. But the number of houses for sale has plummeted. People are ‘locked in’ to low-interest mortgages. They can’t sell; they can’t move…or they will have to face much bigger down payments and much higher mortgage payments. This has left the pool of houses available for sale nearly 30% smaller than in 2019. More amazingly, there are approximately 50 million more people in the US than there were in January 2000. But there are 37% fewer existing houses for sale today than there were then.

Think of the poor real estate agents! Nothing to sell. No one to sell it to. Spiders build their webs in real estate office doorways, confident that they will be unmolested. Banks close their accounts for lack of activity. The volume of sales declined again last year, the 22nd year in a row of falling sales.

Relative to the population, never have so few houses have been available to buyers.

But don’t worry. You can’t afford one anyway. Considering today’s 7% mortgage rates, never have they been so expensive.

Regards,

Bill Bonner,
For The Daily Reckoning Australia