BALTIMORE – Finance or politics? We don’t know which is jollier.

The Republican presidential primary and Fed monetary policies seem to compete for headlines. Which can be most absurd? Which can be most outrageous? Which can get more page views?

Politics, led by Donald J. Trump, was clearly in the lead… until yesterday. Then, the money world, with Janet L. Yellen wearing the yellow jersey, spurted ahead in the Hilarity Run.

The Dow gained 83 points.

A Witless Tool of the Deep State?

“Cautious Yellen drives global stocks near 2016 peak,” reported a Reuters headline. The story itself was a remarkable tribute to the whole jackass money system.

At first glance, “cautious Yellen” would seem incongruous with stocks rising to “near 2016 peak.” Caution normally means playing it cool, not encouraging speculation.

But it wasn’t so much what Ms. Yellen said that sent stocks racing ahead. It was what she hasn’t done. And she hasn’t done exactly what we thought she wouldn’t do. That is, so far this year, she has not taken a single step in the direction of a “normal” monetary policy; our guess is that she never will.

Why not? Is it because she is a witless tool of Deep State cronies? Is it because her economic theory is silly, superficial, and simpleminded?

Or is it because she and her predecessor, Ben Bernanke, have done so much damage to the normal world that there is nothing to go back to? They have burned our bridges… our factories… our savings… and everything else behind them. Now, it is better just to pack up, move out… and keep on going.

That is more or less what Charlie Munger sees coming.

Prepare for the Worst

Asked whether the Fed would reduce its balance sheet to pre-Great Recession levels (by selling back to the private sector the $4 trillion worth of bonds it bought over the last eight years), Warren Buffett’s long-time business partner had this to say:

I remember coffee for 5 cents and brand new automobiles for $600. The value of money will continue to go down. Over the past 50 years, we lived through the best time of human history. It is likely to get worse. I recommend you prepare for worse because pleasant surprises are easy to handle.

The “normal” financial world is no longer habitable.

Ms. Yellen went on to say that these soupçons of recklessness – her hints about not returning to normal – provided an “automatic stabilizer,” to the global financial system. That’s right. (And here is where we begin to laugh uncontrollably.) Not only does outrageously easy credit help “stabilize” the system, so does the anticipation of more of it!

Maybe giving out the news that she will NOT even try to get back to normal helps to settle investors’ nerves. Maybe normal wasn’t all that great anyway.

Either way, speculators can continue whatever perverted hustles they have going… free from the fear that “normal” will walk around the corner and catch them in the act.

But what’s this? A complicating factor, the “outlook for inflation,” is “uncertain,” says Ms. Yellen. The Financial Times clarifies: “[I]nflation could take longer to return to the Fed’s 2% target.”

Ms. Yellen is worried about a lack of inflation in much the same way primitive farmers worried about a lack of rain. Her response is to do more of the ritual dances… and say more of the magic incantations… that have so far only produced more drought conditions.

A Quarter Century of Voodoo

In Japan, they’ve been doing this voodoo for 26 years. We’ve had our eye on Japan since the mid-‘80s, when everyone was sure that Japan Inc. was the hottest thing in the econosphere.

The miracle economy blew up in 1989, and liquidity disappeared. Since then, Japan Inc. has been the Sahara of the developed world. QE, ZIRP, NIRP, monumental deficits, Abe’s Arrows… nothing worked to make it rain.

Negative interest rates, announced late last year, were supposed do the job. Savers were supposed to throw up their hands, open up their wallets… and spend, spend, spend to avoid paying the tax on saving.

Instead, savers saved more. What else could they do? With negative rates they needed more savings to get the same financial bang per buck.

Result: In January, Japan’s retail sales fell 2.3% over the previous month.

But the Japanese feds aren’t giving up. And now they turn to two of the world’s most celebrated witchdoctors – Paul Krugman and Joseph Stiglitz – for advice on what to do next.

Japan has famously run huge fiscal deficits in an effort to get the economy moving. Thanks to a quarter century of these loose budgets, the island now has gross government debt equal to 240% of GDP and nearly nine times tax revenues.

Most of the spending is used to fund programs for old people – health care and pensions – making it hard to cut back. Japan’s government finances are nothing more than a huge, compulsory, unfunded, old-age benefit program… one that is sure to go broke.

But don’t worry, Japan. According to the Financial Times, the two Nobel Laureates went to Tokyo and argued – if you can believe it – that Japan needs more liquidity, that is, “a looser fiscal policy.”

Yes, like New Orleans needed a shower after Hurricane Katrina.



Bill Bonner

Further Reading: More liquidity for Japan? There’s already at least $200 trillion of debt smothering global economies, and now they want to add more? This can’t end well for any of us.

As Bill’s been warning, the world’s crackpot credit scheme that began 45 years ago is now coming to a head… In his online presentation, Bill pulls back the curtain and shows you just how broken the entire system has become… and how it is now on the verge of collapse. He also gives his personal advice for how to avoid the worst of it. Watch it here now.

Portfolio Insight

By Chris Mayer, Editor, Bonner Private Portfolio

Editor’s Note: Starting today, you can watch as Bill and Chris unveil the investment strategy Chris has spent the past 10 years perfecting. See below for details…
There are six oil stocks that are almost surely toast by the end of 2016…

You can tell by their bond prices.

Bond prices are a clue to financial health. Firms usually issue bonds at face value, or par. But if the company gets in trouble, the market might discount the bonds.

For example, a $100 bond that paid 5% at issue might later sell for $10 if the market thinks the odds of repayment are very low. The firm still pays 5%, or $5. But because the bond trades for $10, it yields 50%.

“Once bond yields surpass 50 percent,” writes Scott Fearon, “the chances of a default and reorganization approach near certainty.” Reorganization usually wipes out the value of the stocks. Bondholders get first crack at salvaging whatever value remains.

Fearon is a hedge fund manager and the president of Crown Capital Management. His fund averaged 11.4% annually since inception 1991. And he had only one down year. His specialty is short selling, or profiting when a stock falls.

Today, he points to six energy stocks where the bonds yield 50% or more: Basic Energy (BAS), Gastar (GST), Energy 21 (EXXI), Exco Resources (XCO), Stone Energy (SGY), and W&T Offshore (WTI).

“Unless oil prices rally quickly back to toward $90 or more,” Fearon writes, “every energy stock mentioned above will almost certainly finish 2016 at or near zero.”

I agree with him.


Chris Mayer

P.S. This morning, I unlocked the first of three free training videos in which Bill and I discuss my personal investment strategy – the same strategy I’ve used to beat the market more than 2-to-1 over the last decade. 

There’s no obligation. It doesn’t cost a cent. But it will give you the chance to invest in the same companies Bill’s family trust is investing in. Click here to access the first video.

Featured Reads

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One Sure Way to Play the Next Surge in Gold Prices
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It seems Bill touched a nerve with his Tuesday Diary issue titled “Are we becoming a nation of silver-haired crooks?

Don’t think so. The market is totally and absolutely controled by very young money changers.  

– Mario Z.


Silver haired crooks have been around a long time; where have you been?

I don’t know about your thoughts or ideas on our incompetent candidates running for president, but neither Hillary nor the Donald nor the other Democrat or Republican are intelligent enough to make a decent president. It is very sad and it really does not matter whom you vote for because the U.S. public will be screwed either way since we live in a two-party dictatorship. 

Wake up!!!

– Hans S.

Could it be our gray hair, or the lack thereof, that corrupts our memories, i.e. our lens of perception?

The unveiling of the "establishment" can provide great entertainment and enlightenment if we’re willing to admit that it has been operating under enforced secrecy. The smoke filled back rooms serving whiskey et al were SOP in my youth.

Let’s relax and enjoy the trip, especially if we survive to see the results.

– D. M.

What do you mean "Are we becoming a nation of silver haired crooks?" WE ALWAYS HAVE BEEN!

– Siegfried H.


Our real economic problems come down to – Legalized Stealing.

The masses can no longer afford it. Trump can probably delay the consequences, Sanders may be able to save the U.S. from burning. Prison is a logical real alternative. No food to buy, no rent to pay, not a burden to his/her relatives.

– Peter W.

I really love that one, Bill! Go Trump!

– Steve T.

In Case You Missed it…

No one knows commodities better than Bill’s friend and business partner Doug Casey. He’s studied the markets in and out for the past 38 years.

And now he’s got a special, limited-time offer for Diary readers to access not only all those decades of research but everything his team puts out… for life!

To hear Doug explain just how profitable his research can be, Watch here now.