Dear Diary,
The Dow rose on Friday, after falling by more than 200 points the day before.
This left us with little idea about where the stock market was going. Was it still going up? Or down? Mr. Market couldn’t seem to make up his mind.
And now we’re beginning a new week. The leaves are turning. October begins the day after tomorrow. The sun sinks lower and lower in the noonday sky. And day after day, all the Earth ages… drooping unto death.
The dollar is going up. For now. But the long-term trend for both the greenback and the empire it supports is probably down. The share of world GDP produced by the US is in decline. The share of world trade that goes to or from the US is also in decline.
America’s share of the world population is falling, too – though not as fast as Europe’s or Japan’s. The US is aging… with old people… old industries… old technologies… old government… old institutions.
The Interstate Highway System was built over 50 years ago. The train system is even older. And Social Security got its start nearly 80 years ago.
Not that we have anything against old people or old things – we’re fast becoming old ourselves. But old things don’t grow; they shrink.
Dollar Demise?
Here’s Russia Insider with another reason to suspect the dollar and the empire it supports are bound to shrivel:
On September 23, the Moscow Stock Exchange agreed to approve trade in Hong Kong dollars after a raft of Russian corporates had demanded the move.
For the Moscow Stock Exchange this was an important move as companies such as Sberbank and Gazprom had already made plans to raise billions of dollars in Asian currencies such as the yuan, the Hong Kong dollar and the Singapore dollar.
The demand for Chinese currencies in Russia has spiked after the sanctions and the trade deals announced with China earlier this year. Yuan trading on the exchange is up tenfold from last year and is growing at a rate of 26% month on month as of August. September is on track to post another record month with double-digit percentage gains on the month.
The move is the last piece of the puzzle in cementing Russia’s new economic model: economic integration with Asia. It also signifies that the West may have lost Russia forever as the announcement also followed news that Russia’s third largest bank, Gazprombank, had started issuing cards with China’s UnionPay.
China is already Russia’s largest trading partner, making up 11% of all Russian trade, and the two nations are targeting a minimum of $200 billion of mutual trade by 2020 – half of which they wish to be settled in rubles and yuan.
But hey, cheer up. We’re still in the biggest credit expansion of all time. The Fed is still fiddling with interest rates. Excess liquidity is running low… but there’s still enough to get a buzz going.
It will all come to an end, of course. But for now, news from the real estate sector tells us the party is still going on. In Houston, Texas, a 27,000-square-foot “château” has been listed for $43 million – the most expensive house ever to go up for sale in the city.
And in Florida, another French-inspired pretension, Le Palais, is offered for $139 million, making it the most expensive house ever offered in the US, and perhaps the world.
Our lead researcher, EB Tucker, believes Le Palais is probably “the worst single investment in the United States of America.” He’s set out to prove it in the next issue of The Bill Bonner Letter.
Your editor is not so sure. There are plenty of other investments vying for the title….
“Yes, but none of them has the kind of negative carry you get from Le Palais,” counters EB. He has a point. We wouldn’t want to pay the air-conditioning bill, let alone the property taxes.
Keeping Score?
But here we take up the subject we began last week: “Homage to Poverty.” Some readers have suggested this series is tongue in cheek… or even hypocritical. But we are as serious as ever.
Poverty has its advantages. And one of them is that you don’t have to live in Le Palais…
We leave it to EB to make the case against buying expensive real estate. We wish to make a broader, deeper argument.
As T. Boone Pickens put it, money is just a way of “keeping score” in life. But watch out: The “winners” are often the biggest losers.
We’ve been rich and we’ve been poor. Being rich is better… but only marginally. And only because it helps you appreciate poverty. When you finally make some money, you realize it’s not all it’s cracked up to be.
For every glass wealth helps fill it leaves another one empty. It gives us more freedom to come and go as we please. But the more we come and go, the more we want to stay put.
It gives us more buying power. But the more stuff we buy, the more stuff we want to get rid of. It offers us more leisure time. But the more leisure time we have, the more tedious leisure becomes.
For everything nature gives, she takes back something. Remember, there are only three key decisions you make in life: what you do, whom you do it with and where you do it.
Wealth can make those decisions more difficult. The wealthy can do whatever they want, live wherever they want… and, we presume, with whomever they want.
But we already explained how wealth can take you away from the things you really like doing. It can also take you away from the place you really want to be.
During our career, we have owned a château – a real one, in France, with 23 bedrooms. We’ve also owned a mud-and-stone house we built ourselves for a grand total of $13,000.
Which one do you think gave us more pleasure?
The château cost a fortune. It was – and still is – magnificent. Splendid. Stunning. One of the last great châteaux built in France before the revolution, it looks a little like Versailles… with perfect classical proportions.
But it is not a nice place to live. You feel as though you have snuck into a museum that is closed for the weekend; you fear the guards will throw you out when they come to work on Monday.
Our little adobe getaway place, on the other hand, is a constant delight. We built it with our own hands (with two of our sons helping) in the semi-desert of northwestern Argentina.
The stones were free. The adobe was free. Almost the entire house was free. And yet, it is a marvel. It has vaulted adobe ceilings… arches… and a cupola at the center. There is also a large stone fireplace. Much of the interior was plastered with the local red mud. The textures are rich and authentic.
We faced it toward the sun… and use the incoming sunlight to heat it. It needs no other fuel. We cook over an open fire. We heat water by running water through a black steel tank. Electricity comes from a small solar panel and a single 12-volt battery.
Total cost for utilities: approximately zero.
A House Is Not a Home
Most of the fun lately has been in building gardens around the adobe house. There are so many stones that we have been able to build stonewalls and terraces.
One holds a small fruit orchard. In another, we have put grapevines. Still others are filled with flowers. Each time we visit, we happily work on gardens and enjoy the isolation and solitude.
Compare that to the château in France. There, we can barely touch anything. It’s a protected monument!
But here is the problem: As your wealth increases, you tend to be lured to bigger, more monumental… and ultimately less satisfying… places. They eat away at your wealth… your time… and your life.
You get caught up in the “trading up” phenomenon. Pretty soon, you have traded up all over the place. Then you no longer own a home; you have a number of houses, and they own you.
The Wall Street Journal reports, for example, that the owners of the “château” in Houston are selling it because “they have homes all over the world… and are not using this Houston house as much as they thought they would.”
Allow us to correct the record – from experience. A home is where you live… where you keep your things. It’s where your heart is, as the old saying put it.
When you buy one of these monstrosities, you are not buying a home. You’re buying a house to show off, not a cozy place for your family to live in.
And because it is so big, you will have to share it with staff. There will be people around you all the time – fixing things, tending the lawn and cleaning the kitchen. A yardman… a pool man… a plumber… a repairman.
You can’t manage a place like that yourself. So you have to manage a team of people who manage the place.
Like a trophy wife, it may be beautiful. But it will also be costly.
Regards,
Bill
Volatility Is Back
The “stealth correction” I warned about last week may or may not be turning into a full-blown correction. But one thing is for sure: Market volatility is back.
The Dow experienced 100-plus point moves for each of the five trading sessions last week.
The last time we saw these kinds of price swings was in June 2013.
Another troubling sign – one we’ve been flagging for some time now at the Diary – is the continuing disparity between the performance of large-cap and small-cap stocks.
With two trading days left in September, the S&P 500 is down 1.4% for the month. But the S&P Small-Cap 600 index is down 4.4%.
What does it all mean?
Simply put, it’s time to prepare for a stock market surprise.
Nobody can accurately call a market top, except by sheer luck. And nobody should try. Investing success is not about clairvoyance, but about getting the basics right.
This is now the fourth longest bull market in US stock market history. And we’ve now had 700 consecutive trading sessions without so much as a 10% pullback.
This has lured a lot of investors into an already richly valued market. And it’s bred a heck of a lot of complacency.
We continue to advise regular readers to build up their cash positions (to be able to take advantage of cheaper prices down the road). And to watch their trailing stops closely.
Forewarned is forearmed, as they say…
P.S. Bonner & Partners senior analyst Braden Copeland has prepared a special report on exactly what to do before the next correction. It’s called “Open in Case of Emergency.” And it contains step-by-step instructions on how to protect your profits and make outsized gains as quality assets go “on sale.” Read on here for full details.