PARIS – The big news over the weekend was that the Paris meeting of climate foxes produced an agreement…
They will spend $16.5 trillion of other people’s money to raise more chickens.
“Forget ‘Big Oil,’” proclaimed a Bloomberg headline, “Get Ready for ‘Big Solar.’”
We don’t have any knowledge or prejudice on the subject. But it sounds like the fix is in.
Like the War on Drugs, the War on Poverty, and the War on Terror, we predict that the War on Carbon Emissions will prove successful – but only for the warriors.
Near Certain
But how do we know? How do we know anything?
The future, as we remind ourselves almost daily, is a movie that hasn’t been released yet.
A reader wonders:
I am a new subscriber and just getting a feel for the tone and quality of information presented in your Diary and your newsletter. A contradiction emerges: How do you reconcile your near certainty of a deflation induced collapse of the credit system [catch up here] with your view that one can never know the future?
Glad you asked…
Most people strongly believe – they are “near certain” – that the sky will light up tomorrow morning just like it does every day. No one knows for sure. But it is probably a mistake to bet against it.
Likewise, if you are working in one of Baltimore’s poor neighborhoods, and you leave your tools in an open van, don’t expect them to be there when you come back. Just sayin’…
Markets follow patterns. They go up. They go down. Economies, too, have their good hair days and their bad hair days.
There are cycles in all aspects of human life. We are born. But we die, too. Our cities, countries, and empires flourish… and then stagnate and decay. We breathe in… and out. We are happy… then we get the blues.
Long observed and carefully described are the cycles in the credit market. Interest rates – which track the ups and downs – do not go only in one direction. Sometimes, they back up. They change their minds and turn around.
One Direction
You can see why this has to be so…
Imagine if interest rates only went in one direction. Investors would know the future. They would anticipate the direction of the market (correctly) and buy investments to take advantage of it.
But how? Who would sell? Who would want to be on the other side of the trade? If rates only went up, who would bet on lower ones?
No… If people knew the future, there would be no need for markets (the purpose of which is to “discover” prices). And the present would become a monotonous blur of sameness.
But markets cannot be obliterated. When they are outlawed… they go underground. When they are delayed… they build up energy. When they are denied… they reassert themselves, with a vengeance.
Credit expansions are enabled by low real (inflation-adjusted) interest rates.
Credit contractions occur when real rates go up. That can happen because investors are afraid they won’t get paid back, or because they fear the money they get back will have less buying power than the money they lent.
Either way, real rates go up… and credit contracts.
After 66 years of credit expansion, and 33 years of a falling trend in interest rates, we expect a reversal.
As Deutsche Bank dryly puts it, “U.S. looks late in the cycle on a macro and micro basis…”
A “near certainty”?
Probably not.
A good bet?
Probably.
And poor Janet Yellen – sheltered in the academic and regulatory world all her adult life – is about to see for herself.
The fix has been in for the past seven years. Investors knew – with “near certainty” – that the Fed wouldn’t allow long-term rates to rise. This week, she is supposed to begin “normalizing” the situation by raising short-term interest rates.
But markets don’t reward the wishful thinking of regulators or the claptrap theories of professors. They have minds of their own.
Stay tuned…
Regards,
 |
Bill
Further Reading: Bill’s credit collapse call is certainly controversial. It may even sound crazy. But if his research is right, the coming crisis could cut off you and your family from basic things that you depend on every day: ATMs, credit cards, and more. Find out what has Bill so worried.
Looking at the junk bond market, you could be forgiven for thinking that the turn in the credit cycle has already begun…
Today’s chart is of the popular junk-bond ETF the iShares iBoxx $ High Yield Corporate Bond ETF (NYSE:HYG).
It tracks a broad range of bonds issued by U.S. companies considered to be relatively high default risks. As a result, these bonds carry relatively high yields to compensate investors for shouldering that risk.
That is the worst loss for a calendar year since 2008, when HYG lost 24%.
Featured Reads
Investors Barred from Pulling Their Money from Junk-Bond Fund
Third Avenue Management, a major U.S. mutual fund, has frozen withdrawals from a $3.5-billion junk-bond fund. Managers say the move will allow them to liquidate the fund’s holdings in an orderly fashion.
Junk Bond Squeeze Has Echoes of 2007
Despite the lessons from the 2007 credit meltdown, investors have been “reaching for yield” by buying risky junk bonds. This has pushed yields to ultra-low levels… meaning investors aren’t even paid for taking big risks.
China Is Using a New Fuel Type to Replace Oil, Gas, and Coal
A team of chemical engineers just found a fuel that can power the entire planet for thousands of years. One government official says, “It’s growing so fast it’s going to overtake everything… It could double every two years.”
Mailbag
Today… feedback on Bill’s issue on America’s disappearing middle class.
I think that the “Middle Class” all over the world is now endangered. I could be wrong, but I don’t think so.
I can’t help but wonder what happens when this “class” no longer exists? When the world is left with only the rich and poor? When it’s just the powerful and the powerless?
The first time I saw The Hunger Games I scoffed: “What nonsense is this?” I thought: “We the people would never let life degenerate to this.” But I felt very uneasy in the pit of my stomach.
I enjoy your letters very much. Keep up the good work.
– Rowena J.
Love your intro here talking about firing all the folks responsible for the various insane and corrupt strategies of recent years such as the war on drugs, wars, and other equally stupid and criminal policies. Well said!
– Michael B.
The so-called “poverty line” is an arbitrary percentage which is why the percentage of poor people never changes. It’s just another form of job justification for government bureaucrats.
– Gerald B.
And this on the other big theme Bill is tracking – the Deep State.
“We’re observers, not fixers. And what we observe is that no candidate – except Ron Paul, who never posed a serious threat – has ever challenged the Deep State.”Your statement is not correct. Since 1972, there have been candidates challenging “the cult of the omnipotent state” – or, in your words, the “Deep State.” Those candidates are from the Libertarian Party.
Before you say, “Well they don’t count, because they don’t have a chance of winning,” remember the point of your missive – the Deep State. If you are correct about it (and Libertarians believe you are), the only reason they “don’t have a chance of winning” is because the Deep State controls everything – including elections.
But an interesting thing is happening: The more the Deep State grows, so too does the opposition to it. Registered Libertarian numbers have never been higher – growing each of the past eight yours in a row. Resistance is growing. All that I ask is that you give due credit.
– Joe J.
In Case You Missed It…
CIA advisor and currency expert Jim Rickards just released a brand-new market update. In his latest time-sensitive alert, Jim warns about a new and potentially dire threat to the U.S dollar. Just days ago, the IMF approved the Chinese yuan as the main world currency.To find out how this change will affect you and your family – and how you can turn it to your advantage – watch Jim’s new video now.
|
