Washington [is] a lot more broken than President Trump thought that it was.
— White House Budget Director Mick Mulvaney
SÃO PAULO, BRAZIL – On Friday, the much-hyped Trump/GOP Obamacare reform sank into the swamp.
If anything keeps us from national bankruptcy, it won’t be entitlement reform.
Not under Donald J. Trump.
Next up, tax reform.
Here again, readers are advised not to hold their breath.
The same slimy swamp battles – with politicos, insiders, GOP rival factions, and President Trump himself all snapping at each other’s tails – will probably kill any serious reform.
Besides, there’s a deeper problem. Tax “reform” or tax “cuts” are useless unless spending is also cut.
Otherwise, they just shift the burden from one taxpayer to another… or from taxpayers to consumers… or from targeted tax victims to the general public.
And trying to cut spending is… well… tough.
And if you don’t cut the military or entitlements… what’s left?
We recall the jubilation in some quarters as the new team sailed up the Potomac and dropped anchor in the Tidal Basin.
The parties… the fanfare… the hopes that, finally, the U.S. government might take a new tack.
U.S. GDP was $14 trillion in 2009. Today, it is $18 trillion. That’s a 35% increase, equal to $4 trillion.
Meanwhile, the Dow rose 200%… an increase of $14 trillion.
Per capita, working stiffs saw barely any increase in the value of their main asset: their time. But day and night, the rich got richer and richer… without breaking a sweat.
For every extra dollar earned by the working class over the past eight years, the financial-asset owners – about 10% of the population – earned three times as much.
This skewing of wealth toward the wealthy didn’t “just happen.” It wasn’t caused by the Chinese or the Mexicans. Or the liberals. Or the conservatives.
Instead, it was the product of a credit-money system that is now firmly supported by Republicans and Democrats… and the entire Establishment.
It is also the main source of funds for the swamp… and for the Deep State critters who live in it.
Headed for the Rocks
Mr. Trump promised a change. But already, his administration heads for the rocks.
To deliver on his promises – draining the swamp, making America great again, and giving the average working guy a decent break – his band of buccaneers had to move fast… and boldly trim the sails.
It had to take on the Deep State – the “shadow government” that really controls the levers of power – and make real cuts in bureaucracy and in spending.
It also had to reform the fake-money system. But that was always such a far goal, it was never mentioned.
Typically, a new president has the wind at his back… at least for a few months.
But we’re barely two months into the Trump team’s program, and the winds have already shifted. There are no cuts to entitlements anywhere on the horizon – including the runaway O’care system.
Mr. Trump now blames the conservative Republicans in the Freedom Caucus (the Tea Party guys) for blocking the GOP health care reform. And he finds it tough to get “Lil’ Marco” and “Lyin’ Ted” to cooperate.
As for the Democrats, forget it: He accused their outgoing prez of wiretapping him. And their new champion, he suggested, should be locked up.
There won’t be many Dems crossing the aisle to help the guy.
Blowin’ Up a Gale
Mr. Trump – the self-proclaimed dealmaker extraordinaire – is discovering that getting the ship of state to go where he wants is not easy.
It’s one thing to make a deal in the world of business. It’s another in the world of politics.
And watch out… A real gale could be blowin’ up…
Markets – so benign and helpful up to now – may soon turn on him, too.
From what we see now, it looks as though the U.S. bond market hit its high last July… and U.S. stocks peaked on March 1.
If this is so… and we wait to find out along with everyone else… it could mean a much tougher situation all around.
Falling prices on Wall Street will lead to some long faces. And as they fall, you can expect some calls for the Fed to reverse course – to lower interest rates rather than raise them.
But there’s an ill wind stirring.
The latest reading from private inflation tracker PriceStats – which bases its readings on millions of online prices – puts today’s prices 3.6% higher than those of a year ago.
At that level, it will be hard for the Fed NOT to continue its rate hikes. And it will be hard for stock and bond prices NOT to fall.
And it will be hard for the Fed NOT to find that it, too, is in conflict with the Trump administration.
We can see the tweet coming: “Stocks and bonds falling. Economy going into a recession. Jobs disappearing. And the Fed won’t lower rates. SICK!”
Further Reading: Next up in Investing Insight… our friend Chris Mayer writes to you with some timeless investing wisdom.
BY CHRIS Mayer, EDITOR, Chris Mayer’s Focus
Imagine yourself 20 years ago…
You look back over the past 30 years. You recall:
|— The Vietnam War
— Wage and price controls
— Two oil shocks
— The resignation of a president
— The fall of the Soviet Union
— A one-day drop in the Dow of 508 points (when that was a 23% move)
And yet, despite all of that… the basic principles of sound investing still apply.
Making Fear Your Friend
Billionaire value investor Warren Buffett made this observation in his 1994 shareholder letter. Following these principles, he wrote:
Imagine the cost to us, then, if we had let a fear of unknowns cause us to defer or alter the deployment of capital. Indeed, we have usually made our best purchases when apprehensions about some macro event were at a peak. Fear is the foe of the faddist, but the friend of the fundamentalist.
A different set of major shocks is sure to occur in the next 30 years. We will neither try to predict these nor to profit from them. If we can identify businesses similar to those we have purchased in the past, external surprises will have little effect on our long-term results.
I have written my fair share of criticism of Buffett over the years. But as an investor, he’s a wise man. And I would reiterate his basic message to you today.
People get way too wrapped up in what the Fed is doing or in the economy or China or currency issues. They let these things distract them from the task of investing soundly.
Ironically, it seems to me that the smartest people are the ones most likely to try to predict the unpredictable.
I say go ahead and read whatever you want.
Debate the big ideas of the day… Complain about the Fed with your friends on the golf course… Tell them the world is going to hell at the poker table… Decry the state of the world over cocktails.
But when you sit down to invest your money, forget all that stuff and focus on the timeless principles of good investing.
Look for good businesses that can compound capital at a good rate for a long time, run by honest and talented people (who are also owners), and aim to hold them for years.
In 1972, investor and financial adviser Thomas W. Phelps wrote a fine summary of what I’m advising you to do in his book 100 to 1 in the Stock Market.
He wrote about how he correctly predicted a number of bear markets earlier in his career.
“Yet I would have been much better off if instead of correctly forecasting a bear market,” Phelps explained, “I had focused my attention through the decline on finding stocks that would turn $10,000 into a million dollars.”
That’s the wisdom I’d pass on to you today: Keep looking for great opportunities. And when you find them, sit on them.
This means sometimes you may have to suffer through nasty declines. But over the long haul, you’ll do much better sitting than trying to play the guessing game and call the market’s twists and turns.
— Chris Mayer
P.S. Last Thursday, I told an exclusive group of Diary readers about one of the best investing opportunities I’ve seen in three years. It’s typically used only by the financial elite, so most people have never heard of it. But I’ve used it in my own investing without once losing money.
I know that sounds like an outrageous claim. But I can prove how you can use it just as easily as any big-shot Wall Street trader. Watch right here.
Revealed: $3 Trillion in “Hidden” Corporate Debt
As Bill warns, corporate debt is a major risk for the U.S. economy. But many companies are more exposed than people realize. Say hello to $3 trillion in “hidden” corporate debt.
The Stock Market’s Fatal Flaw
The S&P 500 is up 4% so far this year. But there’s a fatal flaw. Riskier small-cap stocks are negative year to date. And that spells trouble…
Why You Need to Care About Bitcoin
“Cryptocurrency” bitcoin was the best-performing of all currencies last year. It shot up by 123%. And bitcoin bull Teeka Tiwari over at Palm Beach Research Group reckons that the gains for bitcoin are only just beginning.
Readers had mixed feelings about last Friday’s Diary, “Swamp Monsters Devour White Men.” Some took offense to Bill’s examination of “fake news”…
There is nothing new about “Fake News.” It has been going on since prehistory, when one tribe would inform or misinform other tribes for their own purposes. Even Bill Bonner tells people what he wants to for his purposes… as do I.
– C. Burton
Nitpicking will not fix the problem of fake facts. Everyone knows what the phrase “Hitler invaded Poland” means. The fake fact, as far as the Germans were concerned, was that this would provide a benefit to the German people.
When you describe how industry in the U.S. is being gutted by people who only want to make money for themselves, you are being accurate. Now you need to tell people how this rape of industry can be stopped using facts. When you describe how money is being spent supporting people who are not productive, you are accurate.
Now you need to explain how this problem can be eliminated – using facts.
– E. Storms
You have given us the military-industrial complex, the Deep State and swamp critters. Now, you have given us deplorable a new opponent for our hero to fight “swamp monsters.”
Reading your articles on our beloved Donald is better than watching weekly TV episodes of the original Miami Vice. Between your new Trump’s enemies list additions, your modern day mathematical formulas, and your current explanations of how we’re just shifting chairs on the Titanic, makes for great reading. You may end up with a run like Gunsmoke.
Heck, that lasted for 20 years on TV. Keep it coming.
– K. Dame