BALTIMORE – “Hey, it says here it is a federal crime to accept a gift in exchange for your vote.”
Elizabeth was examining her absentee ballot as we drove down I-95.
“I thought half the population got some form of aid from the government. Shouldn’t they at least be disqualified from voting?”
Paying for the Grease
Yes, half the population gets a “gift” of sorts.
Food stamps, welfare, low-interest loans, subsidies, contracts, jobs – not direct Election Day bribes; these are indirect bribes, reminding the voters where their bread is buttered.
This is the big day, when the electorate… that great mass of delusional or suborned voters… must pay for its grease.
It has gotten the stolen goods already. And has been promised much more. Now, it must deliver its vote.
But to whom? The fool or the knave? The showman shyster… or the cool criminal?
Yesterday, the stock market surged and gold fell as investors recovered their confidence.
FBI Director James Comey gave Clinton a get-out-of-jail-free pass. Then it was clear: The fix would stay fixed.
The Dow rose 371 points. Bloomberg says there’s more where that came from. If Hillary wins, expect a continuation of the “relief” rally.
Cut Down to Size
You’ll recall that investors – like the rest of the zombies and cronies – owe half their fortunes to the fixers.
Eight years ago, the U.S. stock market was at less than one-third of today’s levels.
The excesses of the Fed’s low interest rate regime… and its fake money system… were being corrected by a terrific debt deflation. Houses, real estate, collectibles – all were being mercilessly sold off.
Wall Street was being cut down to size, too.
In September 2008, the big banks, trading houses, funds, and financial groups all seemed to be headed to the scrapyard of financial history. Anyone who could get his hands on his money was taking it off the table – fast.
But then the phones started ringing. Treasury Secretaries Hank Paulson and Tim Geithner were on the horn with their friends on Wall Street. Within minutes, the deals were done and the fix was in. Paulson, Geithner, and Ben Bernanke, the new Fed chief, had given investors a “put” option… They had to make good on it.
(Later, Geithner went on to head Warburg Pincus, a private equity firm. And Ben Bernanke now collects $250,000 a pop for giving blah-blah speeches to finance companies.)
You’ll recall that a put option gives the owner the right to sell a stock at a predetermined “strike” price. This protects him from the risk of his stock falling below that floor.
And so it came to pass. The feds waded deeply into the markets, fake money spilling out of their pockets… waving around buy orders and bailouts… along with an emergency interest rate scheme.
They cut the Fed’s key lending rate to “effectively zero” and left it there, allowing all financial assets to reinflate themselves at the public’s expense.
Every dollar worth of resources that got shifted to the zombies and cronies had to come from somewhere.
Savers and honest workers lost wealth. The insiders gained it.
Donald Trump supporters didn’t necessarily understand what was happening. But they’d been working hard for the last 40 years with little to show for it. They knew the fix was in.
And they were right…
The feds stopped the correction in 2009, leaving things completely uncorrected. Now, with fake money, fake interest rates, fake statistics, and fake elections, things have returned to a kind of fake normalcy.
Stocks are up again. They are only a few points below their all-time high, with investors confident that the “put” option is as good as ever.
Unemployment fell back below 5% this week, largely by not counting the people who stopped looking for jobs. The Wall Street Journal described the technique on Monday:
Employers added 161,000 nonfarm jobs in October. […] The unemployment rate ticked down to 4.9% owing to a dip in the number of people participating in the workforce.
And now, eight years later, the Fed is considering a move to “normalize” its rate policy.
If nothing goes wrong – and the market doesn’t sell off… or the economy doesn’t soften… and as long as it doesn’t rain… or the Federal Open Market Committee members aren’t feeling a little down – it says it will begin to prepare for an initial stage of getting ready to… possibly… raise rates in December. Provided it still feels like it.
By tomorrow at this time, nearly half the nation will be looking for their passports and subscribing to our International Living magazine.
But at least we here at the Diary won’t be disappointed. We always look on the bright side and took a hands-off, laissez-faire approach to the election.
To the annoyance of both sides, we refused to pick up either tar baby. And now, at least our conscience… and our hands… are clean.
Whoever ends up in charge at the White House, we will be confident and happy.
The rich will still be rich. The fix is still fixed. And the “put” stays put.
Or maybe not…
Further Reading: Below, we are continuing an important series of essays from Bill’s longtime friend and founder of Stansberry Research Porter Stansberry. Today, Porter and Stansberry Digest Editor Justin Brill, explain why the global manipulated boom is running out of gas.
It Was One of the Biggest Speculative Opportunities in History…
This essay was originally published on October 14, 2016
This situation had all of the hallmarks of a market that had been warped by politics and government…
First, there was a false belief, held almost universally by politicians of both parties: Everyone should own a home.
Second, the government lent virtually unlimited (and largely undocumented) financial support to these ideas.
Fannie Mae and Freddie Mac had a de facto guarantee from the U.S. Treasury via a line of credit that had never been tapped. But it would end up costing the U.S. government almost $250 billion in losses and $5 trillion in guarantees.
And third, there was massive graft surrounding the government’s support of Fannie and Freddie.
These firms were among the largest and most aggressive lobbyists in the U.S. They had more political clout in Washington and were more brazen about their power than any other corporation… And they had been for more than 40 years.
They were so powerful that, for virtually their entire existence as public companies, they were the only firms in the U.S. that were not required to file routine reports with the United States Securities and Exchange Commission. They were simply exempt.
Of course, most folks know how this situation played out…
In short, home prices eventually soared to levels that were simply unaffordable for most Americans. Despite continued government support, demand dried up… prices plunged… and the entire manipulated boom unraveled.
And those speculators – many of whom were profiled in Michael Lewis’ bestselling novel and Oscar-winning film, The Big Short – made a killing.
Here’s the key point… What happened during the housing bubble can happen in virtually any market where the government interferes, be it cars, colleges, or even stocks and bonds.
Whenever and wherever the government acts to push up prices for things – and perversely, it’s often sold under the guise of helping the public, such as making home ownership “affordable” or “improving access” to education – the end result is the same.
Sooner or later, prices will reach a level where incomes can no longer sustain further demand. When this happens, the jig is up.
Which brings us to today…
Central banks are manipulating the world’s securities markets on an unprecedented scale…
Today, virtually every government or country around the world agrees that lower interest rates and higher stock prices are in the public’s best interest – regardless of whether the stocks in question can support the valuation with earnings (or whether the bonds can with cash flows).
In fact, somewhat ironically, the central banks are largely using blunt instruments (market-cap-weighted ETFs) to buy huge numbers of equities in a manner that puts most of their capital into the most expensive stocks. Doing the same with bond ETFs means that the central banks are lending the most financial support to the companies that have the most debts.
Both strategies involve behavior that no rational investor would consider prudent.
Even worse, government support for the global-securities markets has been virtually undocumented. Neither the Federal Reserve nor any other global central bank is audited or subject to review from any national securities regulator.
We have no idea what’s really on their books. We don’t know who they bought their assets from. We don’t know what they paid. And we really don’t know what they’re worth.
Likewise, we have no way of knowing how much economic damage could be wrought if they were forced to liquidate these assets because of a currency crisis.
But we do know that such a crisis is likely – even inevitable – at this point. Governments have warped the global bond and equity markets in a profoundly unstable way.
In the U.S., stocks and bonds have never before traded at these levels relative to GDP.
Emerging-market corporations and noninvestment-grade U.S. issuers have never issued so much corporate debt… And these kinds of “junk” bonds have never traded at such high prices (and low yields).
Sovereign bonds have never traded with negative yields, nor was it even conceivable that sovereign bonds covering 30% of the world’s GDP would pay negative rates of interest.
In the “safest” segment of the U.S. corporate-bond market, the government’s interest-rate manipulation has led investors to crowd into the lowest-quality (BBB) tranche of investment-grade debt, sending this segment of the market from only 17% of issuance to more than 30%. Inevitably, this amount of issuance will profoundly increase the default rate of investment-grade bonds, sending a genuine shock into the U.S. banking system.
Finally, the scope of this government manipulation of global stock and bonds markets is enormous – far larger than the U.S. government’s manipulation of housing prices. In total, central banks around the world have created more than $11 trillion in new money – all of which has been invested in financial securities. There’s simply no way any government intervention in the markets on this scale, over this time period, won’t cause a massive problem.
Yet all of this financial manipulation and stimulus doesn’t seem to be working…
What’s happening? Why, despite the unprecedented and massive government intervention in the markets, are all of the world’s major economies so weak? To us, it’s a clear sign that the globally manipulated boom is running out of gas.
As we explained, manipulated markets always correct themselves eventually…
Today, the U.S. stock market is trading at record highs and at record-high valuations (when adjusted for the amount of debt the companies are carrying today), but earnings have fallen for five straight quarters.
All around the world, in one form or another, the world’s major economies are groaning with a debt burden they simply can no longer afford and with inflated securities prices that aren’t supported by earnings or interest rates.
Sooner or later, investors will realize this game can’t continue…
As default rates rise (which they have been since 2014), as corporate earnings fall (which they have been since 2015), and as global economic activity slows (which we’ve seen with industrial-production numbers and global trade figures), the underlying strains on the real economy are going to become harder and harder to ignore.
What will happen when that moment arrives – when investors realize that just because the government has bought billions in junk bonds, for example, it hasn’t actually made those junk bonds safe investments?
And how in the world will all of these central banks unwind these assets when the holders of their currency demand it?
That moment in time is approaching. We believe investors will become far more skeptical of the central banks’ ongoing manipulations next year because a global recession will emerge and credit risks will become far more important.
We can’t know exactly when it will happen, but we do know how…
It will be rising default rates – first in junk bonds, and then later in BBB-rated investment-grade bonds – that start the panic.
As equity investors realize the risks they face from a global debt crisis (and as major banks begin to fail), the world’s equity markets will panic like we haven’t seen in many generations.
Seemingly overnight, virtually all financial assets will collapse and no paper currency will be trusted. Volatility, which has been dormant for years, will reappear like a hurricane.
Porter Stansberry and Justin Brill
Editor’s Note: Porter is hosting a free live presentation next Wednesday, November 16, at 8 p.m. ET to explain it all. If you still haven’t reserved your spot, click here to do so now.
When you sign up, you’ll also get free, attendee-only access to Stansberry Research’s dedicated Big Trade website.
There, you’ll find everything you need to know to prepare for next week’s webinar… including breaking news and exclusive content available nowhere else.