Dear Reader, Before we get into today’s article on RBA group think, here’s a quick quiz for those interested in markets. Which month did the Dow Jones Index fall in 1929? October. Which month did the Dow Jones fall in 1987? October. It has become part of market folklore that October is the bogey month for markets. But what’s less well known is the month in which both the 1929 and 1987 markets peaked. The Dow Jones in 1929… The Dow Jones in 1987… Between August and October, the smart money was moving towards the exit. Then, group think took over…and the herd stampeded. The moral of the story is if you’re going to exit…exit early. Leave some on the table for the next guy to lose. The pressures in the global system are building. The recent jitters on Wall Street are an indication of the flashpoint we’re heading to a time when daily falls will be in excess of 1000 points. The fat lady is warming up the vocal chords. When she goes into full chorus…it’s too late. In 1929 and 1987 the time to act was in August…a couple of months before the mob woke up to the headlines proclaiming the good times were over. If you’re concerned about protecting your capital and taken action BEFORE the proverbial hits the fan, then please take the time to read this report. ‘Interest rates are now at their lowest level in 5000 years according to the Bank of England’ ABC News ‘The global economy is in a difficult spot right now. It has been weakening for more than a year and now it seems like it might even fall into recession.’ FX Leaders 13 August 2019 Clearly, the lowest interest rates in 5000 years are not producing the economic outcome central bankers so desperately seek. It’s becoming very apparent that this ‘over-used and abused’ blunt policy instrument no longer works. What’s the RBA Governor’s response to the prospect of an economic slowdown? As reported in the Australian Financial Review (AFR) on 9 August 2019… ‘Dr Lowe's three-hour appearance at the House of Economics committee in Canberra has ended. A few key points he made [included]: It is "possible" the RBA is forced to cut rates to near zero if other central banks do and the world economy has a serious downturn.’ Phil Lowe(r) is simply going to play follow the leader…a classic example of group think. Dr Lowe — as we pointed out yesterday — is a PhD graduate of MIT…an institution that has produced the likes of Ben Bernanke…who said in March 2007: ‘At this juncture, however, the impact on the broader economy and financial markets of the problems in the subprime market seems likely to be contained.’ Bernanke couldn’t spot a crisis if it was painted in fluro colours and parked on his front lawn. Another MIT graduate is ECB President Mario (whatever it takes) Draghi…a serial money printer and advocate of negative interest rates. How’s that working out in Europe’s largest economy? The Times on 8 August 2019… And these are the proven failures the RBA Governor is committed to following. Can someone please send Phil Lowe this quote. ‘Insanity is doing the same thing over and over again and expecting different results’ Albert Einstein Phil, zero-bound rates are NOT going to be any more successful than rates at 1%. Please stop this insanity. ..............................Advertisement.............................. .......................................................................... The RBA Neverland The RBA Peter Panners have followed the same flawed ‘low rates, high debt’ growth strategy of their US, European, Japanese counterparts…but, with even more ‘success’. Australian households are the second most indebted in the world AND we have a record-breaking recession free run. Do any of those who live in RBA Neverland see the link between these two (dubious) global achievements? As demonstrated in yesterday’s Rum Rebellion, the US data from the past four decades shows that more debt feeds into higher GDP numbers. Our record debt has been the primary driver behind our record economic performance. That debt load is now our Achilles heel. Pure and simple. And now that the RBA has encouraged people into a lifetime of debt servitude (where more of their income goes to paying off the debt), the Peter Panners moan and groan about slower growth. What’s the answer? Lower rates. That’s right Phil, go ahead and starve retirees (those with savings) of even more income…money they need for living expenses…retarding their capacity to spend money in economy. These Peter Panners are really clever (my tongue is now being removed from cheek). But wait…it gets even better. RBA Governor Phil Lowe has come up with an ingenious plan to boost wage growth. As reported in The Canberra Times on 9 August 2019 (emphasis is mine): ‘Reserve Bank governor Philip Lowe has substantially upped pressure on governments to increase pay packets for public servants, blaming caps on public sector wage growth for suppressing wages across the board.’ Pure genius Phil…pay the non-productive public sector more for doing less. Just a few questions… Do you think the billion or so people in China and India’s aspiring middle class — the ones who will work (on contract) for far less than Aussie workers — are contributing to wage suppression in the Western world? Or, could there be downward pressure on wages from the increased adoption of robotics and artificial intelligence? Or, the fact that people owe so much (thanks to the encouragement of central banks) or are being denied an opportunity to earn a decent return on their capital (again thanks to central banks), they cannot afford to pay more in state government taxes/fees/levies/duties to fund the higher public sector wages? Or, that the global debt pile of US$250 trillion has brought forward years of future consumption into the here and now…people (in sufficient numbers) do not have the appetite for the same level of credit-fuelled consumption…perhaps, people need time to digest what they’ve already gorged on. But let’s put all this rationality to one side. The best determination on whether Phil’s grand wage boosting plan has merit or not, is to put it to the ‘fruit’ test. First, we ask the watermelons (those who are green on the outside, but red on the inside) for their verdict. And, the decision is… ‘No sooner than he [Dr Lowe] had spoken at a parliamentary hearing in Canberra on Friday than Greens public sector spokesman Adam Bandt called for a pay rise for public servants of more than 3 per cent — and 4 per cent for non-executive public servants for four years.’ If the watermelons endorse the plan…it’s a guaranteed lemon. If the watermelons despise and ridicule the plan…she’s apples mate. The fruit test is very simple, but highly effective. Dr Lowe, the finding on your plan is unequivocal…it’s a dud. Everyday Aussies — the ones who go to work in the real world or trying to live off the fruits of their labour — are battling against academics who are wedded to an ideological position that’s proven to be an abject failure…but the Peter Panners show no signs of turning. Such is their belief in this nonsense — nirvana will be delivered with even lower rates and even more money printing — that they are determined to take us on that paved road to hell. If ever we needed a General Patton-type character to go into battle for us, we need one now. But no one is forthcoming. Sadly, the deck is stacked against us. All the positions of power — at central banks and the IMF — are occupied by group thinkers who’ve never left the warm embrace of Neverland. To paraphrase General Patton…‘these bastards are making us die — financially — for our country.’ The Peter Panners — on their guaranteed indexed incomes and generous pension schemes — don’t have to live in the world they’ve created. They flit from one economic forum to another. Delivering useless speeches that only serve to highlight how clueless they really are about life outside academia. If you think I’m seriously pi**ed off…you bet I am. The misguided policies of these group thinkers — all in pursuit of growth, growth and more growth — is going to come with a very significant emotional and financial cost to many millions of people. I wonder if the MIT PhD course happened to include a subject on ‘having a social conscience’? Judging by the group thinkers’ actions, I guess not. When this mess hits the fan, we’ll see these Peter Panners for what they really are…a bunch of group stinkers. Regards, | Vern Gowdie, Editor, The Rum Rebellion |
| ..............................Advertisement.............................. .......................................................................... A 21st Century Nervous Breakdown By Bill Bonner Is our crash alert flag still flying? We hope so. It’s been up the pole for so long, waiting patiently for the stock market to fall, we’d hate to miss it when it finally happens. Stocks sold off yesterday, after the 30-year treasury bond hit a record high and the yield curve well and truly inverted. The Dow ended the day 800 points lower, with the Dow-to-gold ratio sinking below 17. The index measures the fundamental inclination of the economy, by comparing gold to stock prices. When the economy is healthy and growing, people buy stocks and the index generally goes up. When it is fearful and correcting its mistakes, they buy gold and the index goes down. It now takes 16.8 ounces of gold to buy the Dow stocks…down from 40 in 1999 and 22 in 2018. Our guess is that it will continue going down until you can buy the Dow stocks for less than five ounces of gold. A further guess is that this long decline in the Dow-to-gold ratio (aka the greed/fear gauge) over the last 20 years marks not only the decline of America’s leading companies, but of America itself… Long fuse History books will record that by 1900 the US was the world’s largest economy. By 1950 it led the world by almost every measure. By 1989 it no longer had any serious rivals. And by 1999 it reached its peak. Since then, it has been losing market share, losing wealth and power, and losing the small government, open-market, free-enterprise spirit, customs, and institutional advantages that made it such a success in the first place. But we’ll come back to that on Monday… Today, let’s look at the yield curve and what it means. 10 times since 1950, an inverted yield curve (with yields on long-term bonds lower than those of shorter-terms) has signalled a recession. But don’t worry, say the stock pushers on TV. A recession has a long fuse. Between the time the fuse is lit by an inverted yield curve…and the time the stock market blows up…investors usually have 18 months to take their profits. And it’s not unusual for stocks to hit a new high during that period. So, it’s still party on! But this is now the longest economic expansion in US history. Having delayed and denied a correction for so long, and having caused so many absurdities and abnormalities, a real bust may not be willing to wait. And in any case, when a theatre burns down, it’s better to leave the show early rather than later. Simpleton’s faith An inverted yield curve is an odd thing. Time is inherently a destroyer. It degrades everything…milk goes sour, buildings crumble, machines rust, mountains dissolve, and people grow old and die. When the interest rate on long-term loans is lower than the interest rate on short-term money, it implies that fewer things can go wrong over 30 years than over the next 30 days. But there it is…the 30-year US bond now trades at barely more than 2% — less than consumer price inflation. In other words, a buyer, if he holds to maturity, is guaranteed to lose money. Worldwide, another $16 trillion worth of bonds now trade at negative yields in nominal terms. That is not just a market oddity — it is an outrage. With a simpleton’s faith in their own hocus-pocus, central banks all over the planet have mispriced the world’s capital, pushing rates into negative territory. Of the world’s major government bonds, only the US still offers positive (in nominal terms) yields. Large, institutional players — pension funds, trusts, insurance pools — need to get some yield on their money. So they go to the US bond market…thereby raising US bond prices and lowering yields. This causes the yield curve to ‘invert’…which causes stock investors to sell in anticipation of a recession. Blame the Fed Meanwhile, Donald J Trump has used the stock market as a proxy for his own performance. We predict that he will continue to do so…as long as stock prices are going up. When they go down, he will blame the Federal Reserve. Bloomberg: ‘President Donald Trump called Federal Reserve Chairman Jerome Powell “clueless” and blamed his policies for signs in the bond markets that a recession is looming. ‘The president tried to deflect criticism that his trade war with China is harming the economic outlook, as stock markets tumble and bond yields show signs of an impending global slowdown.’ He is surely right that the Fed is ‘clueless’. But they are all clueless…Democrats and Republicans. They — including the ‘low-interest-rate guy’ in the White House — have created a world that depends on more and more inflation…lower rates, more credit, bigger deficits, more fake money, and more debt. The arguments between them are only on matters of technique: Did the Fed cut rates soon enough? Did the Chinese let the yuan fall too much? Should congress provide more money for the military…forgive student debt…or give everyone a guaranteed income? Awaiting the barbarians But the real problem is not a lack of inflation. It’s a lack of integrity. The feds can add as much fake money as they want. Zimbabwe tried it. Venezuela is trying it. At one point or another, almost all countries give it a go. But as we’ve seen, the more they inflate the money supply, the more it distorts prices and disfigures the economy. GDP growth rates go down. ‘Inequality’ goes up. Debt increases. Savings go down. Capital disappears. This is not a sustainable model for growth and prosperity. It leads only to a bubble…and a bust…and worse — including a breakdown of civilised behaviour. What the economy really needs is neither more fake money nor less fake money, neither higher interest rates nor lower interest rates… What it needs is honest interest rates — discovered by savers who offer their real savings…and borrowers who bid for it with real money. In the meantime, we watch the markets…and await the barbarians. We get the news like the homies in Rome in 454. The vandals are on their way, say the headlines. But don’t worry, our armies will meet them…and give them a good thrashing. Stay tuned… Regards, | Bill Bonner, For The Rum Rebellion |
| ..............................Advertisement.............................. READ THIS BOOK BEFORE WE ENTER A BEAR MARKET History shows us that some kind of crash is coming. And we may have just seen the first murmuring. But how big and brutal could it be? This survival guide by Vern Gowdie makes the case for a correction of over 65%. He believes investors are going to see decades of gains blown away in a very short period. If you cannot afford to see your wealth shrink, possibly by two-thirds in value, you need to prepare for that potential snap NOW. You can’t wait. The five protection steps Vern outlines in his book will be of no use to you when this potential avalanche begins to cascade. You need to initiate these steps now. To download your copy, click here. | ..........................................................................
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