OUZILLY, France – It was cold here last night.

The temperature dropped to 48 degrees. We had to close the windows and put another blanket on the bed.

France is a Catholic country, despite its secular government. Important things – even changes in the weather – are marked by the church calendar.

Usually, the cooler weather doesn’t begin until after the Virgin has been assumed into Heaven on the Feast of the Assumption on August 15. Or, so they say.

Friends and family are packing up. Back home they go. Back to work. Back to real life. One daughter already left for Los Angeles via London. Another leaves tomorrow for Baltimore, taking grandson James with her.

Corrupt and Unsustainable

James has been a big help.

Trying to get him to sleep at night, we have been telling him fantastic and unbelievable bedtime stories – full of grotesque monsters… evil maniacs… and events that couldn’t possibly be true. [Catch up here and here.]

Yes, we have been explaining our modern money system… and coming to understand it better ourselves.

The boy, just 14 months old, has probably missed some of the subtle points. But we feel confident that he got the gist of it. He knows the system is corrupt and unsustainable. He probably wonders how it will end; so do we.

Like a child that has climbed a ladder when no one was looking, U.S. stocks are near an all-time high. Soon, its parents will startle awake… and try to get it down without injury.

For the last five straight quarters, U.S. corporate earnings have fallen, while stocks have gone up. This divergence is not likely to last much longer.

Companies only have value because they earn a profit; take that away, and there is no point in owning them.

And price-to-earnings ratios – which measure the multiple that investors are willing to pay for each dollar of earnings – are already far above their long-term averages. (See today’s Market Insight below for more.)

Either companies will find ways to boost profits… or stock prices must fall.

Which one will it be?

You know what we think. We don’t like to be “negative,” but our guess is that U.S. corporations will not find a major new source of profits anytime soon.

What are they going to do?

Cut costs further… after eight years of trimming expenses to protect the bottom line?

Refinance loans at lower interest rates… after almost doubling corporate debt over the last eight years?

Increase sales… to whom?

The most likely outcome is that stocks will decline. That is how the next chapter will begin.

No Turning Back

A bear market should be of no particular concern to the authorities.

After all, since when was the Fed in charge of making sure that the rich get richer?

Ah… since about 1987!

That’s when Fed chairman Alan Greenspan began the foolish and fatal policy of protecting investors from their own mistakes.

When the Dow collapsed by 22% on “Black Monday,” Greenspan reacted by lowering rates and telling the press that he was committed to stabilizing stocks.

Since then, every attempt to correct the stock market or the debt market has been met by the feds like the French Imperial Guard charging the British lines at Waterloo. Hopeless and futile, it nevertheless confused the situation and postponed the inevitable collapse.

And now, almost 30 years later, there is no turning back. No point in reconsidering. It’s too late for further reflection. The Fed must draw up its cannon, unsheathe its sabers, and ride to the sound of the guns. Otherwise, the battle will be lost.

Falling stock prices – when they come – will first be greeted by calm announcements from the Fed.

“We are keeping a close eye on the situation,” it will say.

“Our data show nothing to worry about,” and so forth.

But investors will worry. They will retreat with more of their money. Prices will fall further… and the Fed will be forced to bring out its heavy artillery.

“New initiatives,” will be widely discussed. Incredible new weapons will be unveiled.

But that is still in the future… perhaps far in the future.

For now, after James leaves tomorrow, we will have to go back to shuffling around the garden and muttering to ourselves.




Market Insight


A quick look at S&P 500 valuations should give you pause for thought.

And make you think twice about the returns you expect to earn in the stock market.





PE Ratio




CAPE Ratio




Dividend Yield




The trailing price-to-earnings (P/E) ratio looks at stock prices relative to the past 12 months of reported earnings. Based on this measure, the S&P 500 is selling at a 62% premium relative to its long-term average.

The cyclically adjusted price-to-earnings (CAPE) ratio looks at stock prices relative to the average of 10 years’ reported earnings adjusted for inflation. This puts the index at 62% premium relative to its long-term average.

The dividend yield looks at stock prices relative to dividend payments. Based on this measure, the S&P 500 is selling at a 55% premium to its long-term average.

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Today, readers weigh in on yesterday’s Diary about Donald Trump’s new tax plan.

Trump’s tax reforms are a tired message from Hillary Clinton’s dream opponent, as it is turning out. She could not have asked for a more self-destructive person to run against. Donald is a smart man. At this point, the best we can hope for is a bombshell exposé on Hillary, as he slowly finds his presidential stride.

– Michael C.

Fair is used by politicians liberally, although they always avoid giving a definition of what fair is.

Hillary wants to fund all her free gifts by making the 1% pay their fair share. Aside from the fact that nobody knows what is a fair share, those who would vote for her on the basis of these promises would have a rude awakening when the free stuff idea has to be abandoned because Congress won’t approve raising taxes.

Trump’s tax plan, on the other hand, has a much greater chance of passing, even as fairness remains an elusive concept.

– Erich K.

Donald Trump’s economic team of advisors includes former Treasury secretary John Paulson. How ironic that he shorted the real estate market knowing full well it would implode. Then he convinced President Bush and his “cronies” that we had to have the massive bailout to save our economy and country. What a hypocrite.

– Mitchell M.

Your Diary is interesting and thought-provoking but almost always negative! Surely there are some good, interesting topics out there somewhere that need some positive attention in print.

Case in point, our economy needs a boost. Trump has a plan, but you don’t like it. Hillary’s plan is just more of the same previous eight years, which has stimulated nothing and left much of the middle class wondering where money for next month’s bills is coming from.

How about a discussion on what we can do to improve the situation? Please, take a break from all the doom and gloom!

– Larry L.

I was so surprised to hear anybody make a comment about the Clinton Cash documentary. It just seems like the media is hoping for that little piece of knowledge to go away. I was so excited I had chills running up my leg to hear someone was going to crucify the Clintons for their “parasitocratic” ways…. only to be let down by your bland commentary about the documentary.

I love to read your newsletters. (I am a paid subscriber of two of them.) But I was really disappointed on your reporting on this one. You usually have the uncanny ability to call it like it is from either side of the aisle, but you really failed on this one.

– Rich R.

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Legendary gold investor – and Bill’s old friend – Doug Casey is finally sharing the secret of his investing success. He calls it the “Casey Method,” and it’s the private strategy he’s used to amass a fortune over the last 40 years… including a staggering 86,900% gain on just one investment.

Now you can hear all about it from Doug himself…