POITOU, FRANCE – We were taken aback on Friday by the ferocity of our dear readers’ comments. [Read more in today’s Mailbag.]

What were they so sore about? we wondered.

Son of Satan

Of course, we are frequently wrong about a great number of things. When connecting the dots, we are bound to draw a few stray lines. And we will no doubt be proven wrong in many of our opinions and predictions.

Will The Donald’s trade war pay off for Americans? We don’t think so.

Will the tax cut really boost the U.S. economy and reduce the deficit? There is no sign of it.

Will Mr. Trump really make America great again? The odds, based on what we’ve seen so far, seem very, very slim.

But what do we know? And we’d be happy to be proven wrong.

What was surprising – to us – was that readers did not write to correct us or help us get the lines in the right place.

Instead, they seemed to suggest that we were a son of Satan, sent to destroy all that the good patriots of the United States of America hold most dear.

In other words, the discussion seems to have hit a religious nerve… like setting fire to a cathedral; the faithful fear their most sacred relics will be incinerated.

We have no remedy for this condition, so we will cheerfully ignore it. Besides, cross readers may be right. And those who have a better idea of how the dots connect are invited to send their thoughts by clicking right here.

Goldilocks Report

So, what do we see today?

What we see is an economy staggering under the weight of phony wars and phony finances.

It took more than 200 years for the country to reach its first $1 trillion in debt; now, it adds that much every 12 months. In addition, the Fed increased the base money supply by roughly 400% over the past decade.

What do you get for that kind of money? The feds got the weakest recovery in history… with no real gains in per-hour wages… and GDP growth rates only half those of the 1950s and ‘60s.

In 1821, John Quincy Adams described American foreign policy: “She goes not abroad in search of monsters to destroy…”

Here we are, nearly 200 years later, and U.S. troops are looking for monsters in every godforsaken sh*thole in the world. And where none can be found… they create one.

Jack Ma, co-founder of Chinese mega-company Alibaba, added detail (to CNBC):

If America is looking to blame anyone, Ma said, it should blame itself.

“It’s not that other countries steal jobs from you guys,” Ma said. “It’s your strategy…”

He said the U.S. has wasted over $14 trillion in fighting wars over the past 30 years rather than investing in infrastructure at home.

But against that bleak picture of an aging, degenerate empire is the more pleasant vision peddled by the mainstream press. Take the Friday jobs report, for example.

From Briefing.com:

The monthly jobs report showed the economy added 157K nonfarm payrolls last month, less than the 190K that the Briefing.com consensus was expecting. However, the June increase was upwardly revised to 248K from 213K, helping to offset the disappointing headline number for July. Meanwhile, average hourly earnings increased 0.3% as expected, and the unemployment rate ticked down to 3.9%.

In short, the July Employment Situation report was essentially the same “Goldilocks” report that the market cheered in June when accounting for the revisions and the fact that the year-over-year increase in average hourly earnings held steady at 2.7%.

Fairy-Tale Wage Growth

Nobody wants to look at Goldilocks too closely. Should they do so, they would discover that those wage gains were a fairy tale.

The inflation rate for the last 12 months was 2.9%… and that’s the official rate. So even with the feds’ statistical legerdemain to disguise the facts, we still see that the typical working stiff is getting poorer.

And if we choose to look more closely still, we see that the situation is worse than we thought.

The “jobs” that the feds report are more and more likely to be part-time gigs or low-paying pick-up work in the health, education, leisure, or hospitality sectors where the average work week is only 26 hours.

Full-time jobs in manufacturing, insurance, real estate, mining, finance, or other good-paying sectors have been slipping catastrophically during the entire 21st century.

Only 5,000 of these “breadwinner” jobs have been added per month, says our colleague and Reagan’s budget chief David Stockman, while the adult population has grown 45 times as fast.

Obviously, none of this can be blamed on Donald J. Trump. These trends began 30 years ago or more.

And where do they lead?

A UN report says that there are 18 million people in the U.S. living in “extreme poverty.”

And here we see what they have done to an entire generation.

The New York Times reports:

For a rapidly growing share of older Americans, traditional ideas about life in retirement are being upended by a dismal reality: bankruptcy […]

The rate of people 65 and older filing for bankruptcy is three times what it was in 1991… and the same group accounts for a far greater share of all filers.

Fake Dollar

The NYT connects the dots, too. Naturally, it sees the problem as a consequence of having too little public policy. It believes government should have made sure old people had enough money for their retirements.

What we see is much different: too much public policy. Too much wasted on wars and too much phony finance.

It was the feds who put the post-1971 fake dollar in place when Nixon cut the dollar’s final connection to gold.

And it was this fake dollar that turned America from the world’s biggest creditor to the world’s biggest debtor… and turned it from having the world’s biggest trade surplus to the world’s biggest trade deficit.

And it was this turnaround that destroyed breadwinner jobs… leaving the baby boomer generation with declining real incomes… part-time jobs… and no surplus to save.

Finally, it was the Fed, with its ultra-low interest rates (the Fed still lends at rates below inflation), that made saving money uncool, unprofitable, and unnecessary.

What are we missing?

How will a trade war (with higher consumer prices) help keep old people from going broke? How will bigger deficits reduce federal debt? How will continuing to spend real resources on phony wars make Americans safer or better off?

Beats us.





By Dan Denning, Coauthor, The Bill Bonner Letter

We could be witnessing a cyclical reversal in the leadership of the stock market.

I’m talking about a rotation out of “growth” stocks and back into “value” stocks.

On Wall Street, a growth stock is typically defined as a stock that’s growing earnings at a rate significantly higher than the market average. Investors are willing to pay more for future earnings now and forgo dividends because they see higher earnings – plus, higher stock prices – ahead.

Growth does seem like a nice alternative to which stocks will win and lose if the trade wars escalate… or if the yield curve inverts as the Fed raises rates. But it’s not that simple. You still have to find “value.”

What constitutes “value”? My colleague Chris Mayer would have a more precise definition. But from an internal stock market point of view, value isn’t so much future earnings, but how cheaply you can buy present cash flows.

For example, a value stock may have lower revenue growth. But it can also provide you with stable, consistent income in the form of dividend payments.

In recent years, growth has been in vogue. Value, not so much…

The below chart puts that into perspective.


The black line tracks the iShares Edge MSCI USA Momentum Factor ETF (MTUM), which holds a basket of notable growth stocks like Amazon and Microsoft.

Compare it to the green line that tracks the performance of the iShares Russell 1000 Value ETF (IWD), which is loaded up with so-called value stocks like JPMorgan Chase and ExxonMobil.

As you can see, growth stocks have climbed 49% in the past 18 months. Compare that with the “value” ETF, which has climbed only 11% over the same time.

But here’s what’s interesting…

In July of this year, growth stocks took a hit. MTUM fell 4% in the wake of disappointing earnings reports from the darlings of this bull market: Facebook, Netflix, and Twitter. At the same time, IWD picked up 2%.

The popular narrative – which is the one you’ll hear on CNBC because it keeps you asking what to buy instead of deciding to sell – is that the market will “rotate.” Capital will begin flowing out of one sector and into another… in this case, from growth into value.

That’s entirely possible. The bull market would age, slow down, lose a step or two, and stop for longer lunches.

But in another few days, it will be the longest bull market on record, anyway. Why not rotate out of growth and into value like everyone else and enjoy the ride?

That would be a big mistake – and a wasted opportunity to take some profits from the bull and strengthen your portfolio against the coming bear market.

In the dying stages of a bull market, the financial press is full of stories about what you should buy now, especially if tech isn’t leading the market. But one of the points I’ve made in the last six months is that sometimes, you shouldn’t buy anything in the stock market.

As Joe Withrow showed on Saturday, stocks are more expensive, relative to historical earnings, than at any other time in the last 10 years.

That suggests that, no matter where you hide, future returns will be much lower than what you’ve grown accustomed to over the past 10 years. History bears this out, for anyone who bothers to read it.

One of the single best predictors of low returns ahead is a period of high returns prior. And when expectations are high – now that Apple has become the first company with a $1 trillion market cap, headline writers are talking about the first $2 trillion firm – future returns tend to be low.

It’s part stock market cycles, part human nature, and fully the combination of the two on market action and prices. Now is one of those times where it’s more important to protect the wealth you already have than to put yourself on the line for a few more percentage points.

The risk you take chasing higher highs isn’t big enough compensation. The bear, like winter, is coming.

– Dan Denning

P.S. Two weeks ago, I sent a note to readers of The Bill Bonner Letter. I warned that Big Tech companies like Facebook would blow up – it was just a matter of time. The very next day, Facebook plunged 20%.

If you don’t own Facebook stock, you might think it’s not your problem. But as I showed my readers, you can be wiped out by falling tech even if you don’t own any of the companies.

If you’re a subscriber of The Bill Bonner Letter, you’re invited to review that essay, and see what you can do about it, by going here. If you’re not a subscriber, consider joining Bill and me by going here.


Longest Bull Market of All Time
U.S. stocks are just a handful of trading days away from hitting a milestone: the longest bull market in history. Is this a sign of the end… or will the good times keep rolling?

Doom Index Update
What’s Bill’s “Doom Index” saying about today’s economy? Joe Withrow shares the latest reading… and shows where the cracks are forming.

Get Ready for 5% Yields
At 3%, the yield on the 10-year Treasury is still near historic lows. But that’s changing… With interest rates on the rise, the yield on the 10-year is creeping up. Now, a Wall Street giant warns of 5% yields in the near future.


As Bill mentioned, strong words from dear readers in the mailbag:

I had previously thought that Bill was quite intelligent. However, now I’m beginning to wonder since reading his thoughts on Trump’s governing. Bill needs to look at what Trump has done for the country and not show folks his own ranting and bilge.

Is Bill an under-the-cover liberal? Why else would he say all that stupid stuff? What is he trying to prove? Whatever it is – he failed.

I almost never write about people in this manner; but this time, I couldn’t resist expressing what I think of this jerk, Bill Bonner.

– Robert R.

Please don’t commit suicide when Trump gets re-elected and the Republicans stay in power in both the Senate and the House.

I hope Hillary runs again and is the choice of your party. She half-destroyed your party in the last election, and if you all put her up for president again, she will totally ruin your party. Keep up the good work. Maybe you all can start the “Know Nothing Party” again.

– Charles C.

For you to consider yourself smarter than the brilliant negotiators the president has negotiating our trade wars is laughable! You are a nobody compared to any of them. It is amazing how much you think of yourself… as small-minded people do!

– Harry B.

We, as working and thinking Americans, want to support our dealmaker and are pulling for his success. But then, maybe it is true that Bill is not an American at all. Sounds just like the non-friendly French or the angry No-Brexit minority who are betting against this American president at every turn. I am sick of Bill’s politicizing against President Trump and hearing him carry the left-wing media echo chambers. Enough!

– David W.

Why don’t you just tell the truth? The base that supports Donald Trump is not the poor and unsuccessful, it’s the hard-working middle class, lower class, and upper class… the small, medium, and large business and corporation owners.

The biggest truth you won’t tell in writing (but is very evident in every letter you write), is that you are not a conservative. You are a never-Trumper, Democrat, socialist (all the same thing), and you probably voted for Clinton (again). Just admit the truth to us so we can take your word for what it’s worth.

– Andy S.


Is this Trump’s promised infrastructure boom?

Leaked White House documents show that the president took an unprecedented step in January.

And Jeff Brown, Bill’s top technology analyst, believes it could secure America’s economic dominance for decades