GUALFIN, ARGENTINA – First, a report from CNBC:

Jobs in the U.S. grew by 177,000 in June, the report said, while economists polled by Thomson Reuters expected a gain of 190,000. June also marked the fourth straight month of jobs growth below 200,000. Jobs growth for the previous month, however, was revised up by 11,000 to 189,000.

Meanwhile, February retail sales suggest the same thing: that the tax cut led to a brief and ill-advised fling with spending. But it’s over.

Retail sales began a sharp drop in December 2018 and now, adjusted for inflation, are back to their level of December 2017 – before the tax cut and consumers met.

Crash Flag

Retail sales are good indicators of how much money consumers have to spend. And the numbers are raw – not seasonally or otherwise “adjusted.”

But the daily data, even combined with our hunches, is unreliable.

Every so often, over the last five years, we’ve been convinced that a crash was imminent. So, we raised our black-and-blue Crash Alert flag over our Baltimore headquarters.

But when the crash didn’t come, we had to take it down again, slightly embarrassed. And the flag was getting so much wear and tear, we decided to try a different, more scientific approach. So, we turned to our research department, headed by Joe Withrow.

“Crunch some numbers,” we asked. “Crunch them good and hard, so that even their own mothers wouldn’t recognize them.”


“How about preparing a Doom Index, in a methodical, orderly way,” we explained.

In a matter of hours, Joe was on the case.

[To learn more about the Doom Index and what it measures, go here.]

And here’s his latest report:

Bill – just a heads up… The Doom Index is speeding towards an “8” reading – our crash alert level.

As you know, we hit “7” in our last reading very quickly as data started to come back to us. I don’t think we shared this with readers, but we were on edge behind the scenes, as we waited for the monthly report on building permits to come out. That report was the difference between an “extreme caution” reading and raising the crash flag.

When it finally came, the buildings permit report showed surprisingly robust activity. That kept the crash flag in the closet for another quarter.

But it may be time to dust her off…

We won’t have final numbers for our next Doom Index reading for a few more weeks, but we are seeing some troubling trends.

Looking at the “real” economy, the ISM Manufacturing Index has plummeted 18% over the last 14 months… Including a 4% drop since the start of 2019. That tells us manufacturing is slowing dramatically. And railcar utilization has fallen 12% since Q3 2018, confirming the slowdown.

What’s more, total nonfarm payrolls dropped more this quarter than in any other quarter on record going back to 1998… which is when we started our back-tests for the Doom Index.

In other words, real economic activity is slipping.

Debt Tsunami

Joe continues:

Shifting to the credit markets, we have seen the greatest ratio of corporate bond downgrades (compared to upgrades) this quarter than in any other quarter since Q2 2009 – when the dust from the financial crisis began to settle.

In fact, 233 corporate bonds have been downgraded so far this year, including 135 junk bonds. That’s compared to only 106 upgrades… A sign that the bond market is cracking.

This is especially important today because we are staring down a $1 trillion junk bond tsunami

One trillion dollars’ worth of junk bonds are coming due over the next five years. This is debt owed by companies on shaky ground already… And the bond downgrades ratio tells us those companies are getting even shakier.

There’s no way these companies will be able to pay that $1 trillion debt wall off in full, which means they will need to secure favorable refinancing terms or declare bankruptcy. A wave of corporate bankruptcies would send shockwaves through the financial system and we would see a major credit contraction, as a result… which would lead to the next recession.

That may be one reason why the Fed did an about-face on interest rates. The higher rates go, the more likely that wave of corporate bankruptcies becomes. As we have suggested numerous times, the Fed’s next move is much more likely to be a rate cut, rather than a rate hike.

But it is too late…

By making Mistake No. 2 – raising rates rapidly after keeping them abnormally low – the Fed has caused Treasury yield curves to flatten.

The spread between long-term interest rates and short-term interest rates has narrowed drastically… And that’s a sign of trouble to come.

We have been tracking the 10-year to 2-year Treasury yield curve in the Market Insight section of the Diary. This yield curve is now within 13 basis points of inversion – where short-term rates rise above long-terms rates. When that has happened historically, a recession has followed.

Now, if you look at two less-followed yield curves… the 5-year to 3-year and the 5-year to 2-year Treasury yield curves have already inverted. That’s an ominous sign…

And this is wreaking havoc on the financial sector. As we illustrated in a recent Market Insight, bank stocks are in free fall, right now. The Dow Jones U.S. Banks Index dropped 9% just two weeks ago.

There’s no single reason behind this move, but the yield curve is a major factor. To be overly simplistic, banks borrow money at short-term rates… lend it out at long-term rates… and pocket the spread.

But if there’s no spread to pocket, lending will dry up.

And that will help push us into the next recession, as well.

Coming Fast

So, it looks like the next recession is coming fast. And based on the early data I have, it looks like the Doom Index will hit 8 in our official reading this quarter.

That doesn’t necessarily mean that a stock market crash is imminent. In back-tests, the Doom Index sounded the crash alert several quarters early in 2007.

But it could very well be that this bull market already peaked last September, and the Doom Index is warning of a larger crash to come.

That’s what happened in our back-tests around the dot-com bust. Stocks were trading around their peak in August 2000 and they had already fallen 6% when the Doom Index hit an 8 in the third-quarter reading. But then, the S&P 500 went on to plummet 45% from there – wiping many investors out in the process.

That being the case, it may make sense to give readers an advanced warning before the next official Doom Index reading comes out in a few weeks… The tattered Crash Flag shall fly again.

There you have it. Joe says it’s time to worry.




P.S. We mentioned it yesterday, but we wanted to make sure you didn’t miss it. The latest vintage of Tacana Malbec, the wine from our vineyard here at the ranch, is bottled and ready to be delivered.

In the past, Dear Readers have said very nice things about our wine. We appreciate it. If you’d like to try a bottle for yourself, now’s your chance. My son Will explains all the details in this short letter.


By Joe Withrow, Head of Research, Bonner & Partners

As Bill mentioned above, the Doom Index will likely raise the Crash Flag this quarter.

Today’s table shows how each Doom Index indicator has changed over the past 12 months… and which indicators are flashing a warning right now.

As a reminder, the Doom Index monitors the credit markets, the stock market, and the broad economy to give us an idea of when a market crash is coming. It does this by tracking and scoring 11 financial and economic indicators. For a full explanation of the Doom Index, go here.

The scoring model is based on back-tests going back 20 years… And the Doom Index predicted both the 2000 crash and the 2008 crash in those back-tests without any false signals.

Here’s how it works: When one of the core indicators hits a level that back-tests determine to be “bad,” that indicator receives one “Doom Point.” That’s a warning signal.

Back-tests found that when we get eight or more warning signals at the same time, a stock market crash is likely to follow.


As you can see, the Doom Index is reading 8 right now – our Crash Alert level.

Some of the indicators we outlined above like corporate bond downgrades, the ISM Manufacturing Index, and railcar utilization can be seen in this table. And you’ll notice those factors have deteriorated over the past year, resulting in Doom Points.

We are still waiting on data for bank loan growth. And we will double-check each indicator for adjustments prior to the official quarterly reading in a few weeks… But barring a major change, we will be hoisting the crash flag.

Now, that doesn’t mean a stock market crash is coming next week. In back-tests, the Doom Index sounded the Crash Alert several quarters early in 2007.

But, it could very well be that this bull market peaked last September, and the Doom Index is warning of a larger crash to come. That’s what happened in our back-tests around the dot-com bust.

When stocks were trading around their peak in August 2000, they were already down 6% when our Doom Index hit an 8 in the third quarter. But then, stocks plummeted 45% from there – wiping many investors out in the process.

Joe Withrow


Market Volatility Could Be the New Norm
Investors may remember the end of 2018 as a wild ride that upended the markets. But that’s over… Right? CEO of JPMorgan Chase, Jamie Dimon, thinks this volatility of the recent past isn’t over… in fact, it’s a “harbinger of things to come” …

Goodbye, Big Five
Many contemplate walking away from Big Tech. No more getting tracked by Facebook. No more Google ad targeting. And no more wasting time on a smartphone. But, for some who have taken the courageous plunge, walking away cold turkey isn’t easy. One journalist tried it… and it was hell.

Here’s What Pops the “Everything Bubble”…
As our editor showed last week, the Fed’s policies haven’t done much for the real economy. And Casey Research’s Nick Giambruno thinks all this “stimulating” has set the stage for something even worse… and when this thing “pops,” it might just take the economy down with it.


Today, readers are still enjoying Bill’s “Conversations With a Ghost” and “A Message From the Future”… One even coins our editor as the “Sage of Salta.”

Ah, the hubris of modern humanity! You nailed it with your Message From the Future, Bill. I can’t argue with a thing you said, although, you should have included more mention of the most pressing problem facing us: The destruction of the environment and, hence, Planet Earth. I don’t mean, simply, global warming. Let’s not forget the plastic-choking of our oceans and rivers; mountains of garbage festering in the sun, rather than being recycled; pollution of air and water; the Anthropocene extinction, as humans drive countless species into extinction every day; etc., etc., ad nauseam. Humanity may not survive long enough for your future shade to be born and speak to us.

Also, you shouldn’t give Trump (and his crazed followers) any ideas about cancelling elections by declaring a national emergency or martial law. That insane megalomaniac already fancies himself the next Hitler. Why give him ideas on how to achieve his goals?

– Dale A.

Hear Ye, hear ye, the Sage of Salta speaketh! And a mighty truth from the future lay on the land with the weight of $22 trillion of phony debt. Bill, I’m too old to prostrate myself in the presence of your brilliance (although, at my age prostate might be more appropriate), but once again, you’ve eloquently given us the stark reality that is right in front of us, should we choose to acknowledge it. Having been born during WWII, I was fortunate enough to have grown up in the time span you recall today. And yes, there were conflicts, many of them profound, but in the end, the citizens responded in ways that exemplified what the Founders intended for this great experiment in freedom. To see how that spirit has been defiled today is the greatest sadness of my life.

– Dick W.

Another offers his guitar skills and vocals to Bill’s Gualfin get-togethers

Hey Bill, this Diary is the best. Too bad I wasn’t there, I can play guitar also, and I could have sung “Cattle Call” and many other cowboy songs. Boo-hoo. I also yodel. I do a lot of Jimmie Rodgers, known as the blue yodeler, and the Singing Brakeman. Oh, btw, I also do the “Folsom Prison Blues” and I can play the guitar parts to it also… Just like Luther Perkins, who played for Johnny Cash in his beginning. I like that style.

– Richard S.

And one Dear Reader wants more of Bill’s wine…

Bill, I really appreciate your insights but there is something important missing. What about the grapes and wine? I have enjoyed it for two years now. I hope it becomes a paying portion of the ranch.

– Richard S.

Editor’s Note: Thanks for writing in, Richard. Dear readers may remember that our editor oversees a small vineyard at the ranch. The Malbec that’s produced is different than any you’ll find at your supermarket. And it’s that time of year again…

Bill has just bottled the latest vintage and it’s ready for shipment. But before you buy your case of Tacana Malbec, Bill has a proposition for you. We’ll explain everything right here.


Thanks to a new executive order, the feds may start installing strange-looking devices in communities all across the U.S…

In short, these devices will help protect local communities from being attacked by outside forces like Russia.

While this is an urgent security matter, early investors in this new tech could see their money multiply 64 times over. But investors must act soon. Read on here.