Time alone – oh, time will tell
You think you are in heaven, but you living in hell

– “Time Will Tell,” Bob Marley

HAMILTON, BERMUDA – Where are we? Heaven or Hell?

Bermuda feels like Heaven. The sea is a bright, vivid blue, with clear water in coves and harbors. The sky is a lighter blue, with wispy clouds here and there.

The weather here seems to be much like that of Florida or the Carolina coast, but moderated by the surrounding ocean. Not so hot. Not so cold.

But the Florida coast is flat… In order to have any view at all, you either have to be right on the water or up in a high-rise. And even then, the Atlantic beach is like a ribbon running straight down the shore, with a line of houses and apartment buildings hard up against it.

Here in Bermuda, the beaches are flanked by rocks and cliffs, with rose-colored sand… gentle hills… islands… bays… and inlets. And there are views from almost everywhere… out over the harbors, the lighthouse, and the sparkling seas.


A view of Bermuda from our editor’s hotel room

Heaven Hypothesis

The heaven hypothesis was spreading all over Wall Street and Washington yesterday, too.

Wall Street commentators were out in force explaining why last week’s sell-off was a buying opportunity. “Buy the dip,” they said. And investors did as they were urged to do. The Dow popped up more than 500 points.

In Washington, too, people believe we live in a kind of Eden, with ultra-low joblessness… ever-rising stock prices… and an economy guided by the greatest financial geniuses who ever lived – Donald J. Trump and his right-hand man at the Treasury, Steven Mnuchin.

The Donald’s genius is on display every day. Explaining Sears’ bankruptcy, for example, he hit the nail squarely on the head… that is, the head of his own Treasury secretary:

Sears has been dying for many years. It’s been obviously improperly run for many years and it’s a shame.

Yes, it was Mnuchin and his college pal, Eddie Lampert, who ran Sears into the ground. Mnuchin was on the board from 2005 until late 2016, when he took his current job.

But that doesn’t mean they did anything improper… or dumb.

They’re smart guys. They must have realized that the old retailer was doomed.

Warren Buffett thought so 10 years ago. Buffett had some experience with retail as an owner of the old Hochschild Kohn’s department store in Baltimore, where we used to shop as a child. Once a retailer starts going down, he said, it’s almost impossible to stop it.

And Sears couldn’t compete with the likes of Walmart, Home Depot, and Target… to say nothing of Amazon.

Naturally, the two hustlers didn’t want to put money into a dying business. They wanted to get money out – as much as possible – before the old girl went down.

Then, they would leave the husk to the retail public… and lenders.

Rather than invest in new ways of doing business, for example, Sears took its earnings and distributed it to shareholders and managers – in the form of stock buybacks.

From our colleague, and budget chief for the Reagan administration, David Stockman:

Thus, during the seven-year span of 2006-2012 [Sears] spent $6 billion on stock buybacks even though the company generated only $1.8 billion of operating free cash flow during the same period.

In fact, during the last three years of that period (2010-2012), it actually generated cumulative free cash flow of negative $1.7 billion, but still kept repurchasing stock to the tune of $1.2 billion by borrowing.

This worked like magic in the early stages. The stock went to $126 in 2007. Obviously, that was Heaven… and the best time to get out.

Hellish 43 Cents

But Sears is a big company… and there was a lot of value to be sucked out. Brands could be sold – Kenmore and Craftsman – and retail space could be salvaged. Sears even sold billions’ worth of real estate once occupied by its stores. Some of the derelict buildings were converted into trendy apartments.

Eddie Lampert and Steve Mnuchin kept stripping off the copper flashing and recycling the hardwood floors for the next 11 years. (Mnuchin resigned from the board when he became Secretary of the Treasury.)

Now, the company is little more than a derelict shell, and its stock trades at a hellish 43 cents.

Here at the Diary, we assume Lampert and Mnuchin did the best they could. We doubt we could have done better.

But our job is to connect the dots. And you’d have to be blind not to see the connection between Sears’ demise and the Fed’s EZ-money policies.

When you can borrow money for less than the inflation rate… it won’t take sharp minds long to figure out how to get the money and put it into their own pockets.

In business, you borrow against the company… and pay out in the form of special dividends, bonuses, mergers and acquisitions, fees, stock buybacks… and other assorted hocus-pocus.

Bloomberg looked at the 50 biggest corporate acquisitions over the last five years:

The vast majority of the 50 deals – valued at $1.9 trillion collectively – were financed with debt.

This M&A-fueled leveraging of corporate balance sheets contributed to a surge in debt rated in the bottom investment-grade tier and now represents almost half of the outstanding market, Bloomberg Barclays index data show.

It also contributed to big paydays for the insiders, who watched their stocks go up two-and-a-half times faster than GDP over the last 30 years.

Government, too, got in on the action, using tax cuts and spending increases to do the same trick. Reuters is on the case:

The U.S. federal government closed the 2018 fiscal year $779 billion in the red as tax cuts hit revenues and the government paid more to service a growing national debt, according to Treasury Department data released on Monday.

The deficit for the fiscal year – or the 12 months through September – was the largest since 2012. […]

The deficit in the 12 months through September was $113 billion – or 17 percent – bigger than in the same period a year earlier.

Let’s see, you borrow money… and you spend it. We see how that worked out for Sears.

But how will it turn out for the rest of corporate America… and the nation itself?

We wait to find out.




P.S. Before you go, we should mention that we’ll be speaking before an audience of dear readers at the Legacy Investment Summit here in Bermuda on Friday. The topic of our presentation will be the limits imposed by nature… and the reckonings you can’t avoid. If you’d like to watch our talk, you don’t have to come to Bermuda. You can order the livestream right here.


By Joe Withrow, Head of Research, Bonner & Partners

For the first time in a decade, the United States is back on top as the most competitive economy in the world…

Today’s chart maps the world’s five most competitive economies, according to the World Economic Forum’s 2018 Global Competitiveness Report, which rates the productivity and prosperity of global economies.

The annual report scores 140 countries on 12 areas: institutions, infrastructure, information and communication technology adoption, macroeconomic stability, health, skills, product market, labor market, financial system, market size, business dynamism, and innovation capability.


As you can see, the U.S. scored 85.6 out of 100, propelling it into first place over Singapore, Germany, Switzerland, and Japan.

This is the first time the U.S. has ranked first in competitiveness since 2008, and it’s an improvement on last year’s second-place ranking behind Switzerland.

According to the report, America’s vibrant entrepreneurial culture, dominance in producing a competitive labor market, sound institutional framework, and nimble financial system make its “innovation ecosystem” one of the best in the world.

America’s report card was not entirely upbeat, however.

The report also suggested that there are indications of a weakening social fabric and “worsening security situation” in the U.S. – the country’s homicide rate is five times the average for advanced economies.

And when measured on judicial independence and levels of corruption, the U.S. fell outside the top 10, showing that even the most competitive economies have room for improvement.

– Joe Withrow


Will Sears Employees Get a Pension? Ask the Treasury Secretary…
As Bill showed above, Steve Mnuchin was involved with Sears for over a decade, until he joined Team Trump in 2016. And with the once-proud retailer finally throwing in the towel and filing for bankruptcy, it’s uncertain if pension plans for employees will be honored. And there, too, Treasury Secretary Mnuchin might have a say…

Legal Pot Is Open for Business in Canada
Today’s the day. After much debating, voting, and legislating, legal recreational cannabis is now on sale in Canada, the world’s tenth-largest economy. And you can probably guess how the Canadians are celebrating…

And read also…

How Legal Pot Comes to America
With cannabis now legal in Canada, Nick Giambruno, Casey Research’s cannabis investing expert, believes it’s just a matter of time before the green revolution comes to America. Here’s what could make that happen…


Today, dear readers seize on the tax cuts… the Fed… and how the One Percent spends its money

Your narrative is mathematically improbable. If the tax cut was a fraud and resulted in lower take-home pay, then it cannot have contributed to more government debt. If two-thirds of wage earners didn’t see any change, how do you explain the masses cheering Trump at the rallies? Stop reading biased news reports and get among real people.

– Erich K.

I agree with Donald. GET RID OF THE FED. What has it ever done to keep things on “the straight and narrow”? It needs to go!

– Frank G.

My takeaway from this Diary entry is that the One Percent has so damned much money that it’s “burning” it, figuratively speaking. A few days ago, a world record was set for a bottle of wine. A bottle of 1945 Romanée-Conti burgundy sold for $558,000. Insane!

If you need a sound argument for the left’s desire to redistribute wealth, there it is! People who have no more intelligence than to pay over half a million dollars for a bottle of wine don’t deserve their wealth, regardless of how they “earned” it!

Fake or not, it staggers the imagination to speculate on how much good could be done with the money that the filthy rich fritter away on senseless frivolities: We could help alleviate global warming by giving everyone in America an electric car and installing solar energy panels on every roof… provide full health insurance coverage for every American at no cost to them… end world hunger… cleanse the oceans of plastic contamination… the list goes on.

But, perish forbid, no! We can’t have that! The rich need their wine and shredded artwork, even as the world goes to Hell around them!

– Dale A.

Meanwhile, Bill’s response to the editors at The New York Times is a new Diary favorite…

Loved your piece on the highly educated, mindless writers from The New York Times! When you mentioned climate control, I began to laugh out loud. Why? The “King of Climate Control” was on NPR the other night spouting about how the recent hurricanes were the result of carbon emissions, and it was imperative we do something immediately.

I laughed, turned to my wife, and said, “This interview will get him a nice, big, fat check from Goldman Sachs, as it controls the carbon credit market, and is the reason we have this huge problem in the first place.” Ha, ha, ha. Remember to always “follow the money”! One will be able to answer more of life’s unanswerable questions.

– Steve B.

This was my favorite Diary entry in quite some time. Thank you, Bill!

– Robert B.

Bill, this is one of the sharpest and wittiest criticisms of The New York Times that I have read in a good long time. Keep up the good work. And keep sharpening your skillfully applied skewers for more hapless victims from among the witless panderers of the NYT.

– Ed Z.

“But what an inspiration it must have been… So many activists, community organizers, world-improvers, and politicians working together. If they were all laid end-to-end… wouldn’t that be beautiful?!”… What a wonderful road!

– Tony.

Truer words were never spoken. Your daily insights brighten up my day! Thank you and please continue.

– Egbert U.


Jeff Brown, Bill’s top tech expert, is also at the Legacy Investment Summit in Bermuda this week. He’ll be presenting on “one of the best tech investing opportunities of a generation.”

To get a preview of what Jeff will share, go here.