LONDON – There are several things on our plate this morning – some of them unpalatable.

But let us begin with the question we promised to answer. A dear reader wrote in with a suggestion:

Bill, you’re right about how capitalism is supposed to work. But you don’t work that way. You don’t give your customers what they want. You give them what you think they should have. As many of my fellow readers have pointed out, you’d make a lot more money if you got on the Donald Trump bandwagon and stopped annoying us by criticizing him.

As we will see, the answer will take us on a brief “tour des catastrophes” – from desperate Venezuela to plummy London… and from the past into the future.

No More Normalizing

Venezuela was once a rich country. Its present affliction was self-induced… and predictable.

It’s what happens when you mix bad politics (forcing win-lose deals on people) with bad money (forcing people to use fake, win-lose currency).

Put the cronies in charge of business. Let the loyal apparatchiks control prices. Then, print money to cover your deficits. What could go wrong with that program?!

But once you start down that road, it is hard to turn around. There are no wide shoulders. No parking lots where you can stop to think it over. No exits that allow you to make a smooth departure.

Even slowing down is out of the question.

That is the real meaning of Jerome Powell’s Fed’s policy statements. It was supposed to back up and “normalize” both its interest rates and its holdings.

But when it saw the crashes piling up in the fall of 2018, it panicked. No more normalizing! Instead, its next move is likely to be another interest rate cut, not a rate hike.

Grand larceny is a hard habit to stop – for Europeans as well as Americans. From The Wall Street Journal:

For five years, European nations have been trying to jump-start their ailing economies with what was supposed to be a radical, short-term remedy – negative interest rates.

Instead, central banks haven’t been able to wean their economies off them. Increasingly, they appear to be a permanent feature of the landscape. No major bank that introduced negative rates during Europe’s debt crisis has turned main policy rates positive again.

The baker doesn’t stop baking. The plumber doesn’t stop plumbing. And the thief doesn’t stop thieving. They need the money!

Which is how we get from the biggest disaster of the 21st century – Venezuela – to an even bigger disaster. And it’s how we get back to London… and to our first question.

Cost of Over-Reaching

You’ve read this before; it’s not the first time we’ve mentioned it. But people come to think what they need to think when they need to think it. Markets make opinions, as the old-timers say.

In geopolitical terms, the hegemonic power sees itself as master of the world. Its people – especially its leaders – come to think that they should be masters of fishes and fowl… of forest and field… of everything and everyone. Even over how their allies get their natural gas… and what their own people pay for dishwashers and TV sets.

Thus, do they over-reach… until they are smacked in the mouth by an indifferent and unforgiving Nature.

Over-reaching costs money. The cost of keeping U.S. forces garrisoned in 140 different countries, for example, is approaching $1 trillion per year – about the same as the U.S. annual deficit.

And in a popular democracy, the masters of the master nation must bribe the servants to stay in power. Free education. Free pills. Tax cuts. Hey… let our children pay for them!

And not just that. The masses want protection from a world that has grown hostile. Protection from terrorists abroad… from Toyotas and Huawei in our midst… and from drugs and devils sneaking across the border.

All of that costs money, too. Blocking trade (a tax on consumers) raises costs and reduces output.

Giving some people something for nothing means that other people will have to give up something in exchange for nothing. They lose motivation. GDP goes down.

The feds’ heavy, win-lose foot grows heavier on the gas pedal… as the road ahead narrows and the potholes grow deeper. London races ahead, juiced by the rich credit flow, while distant parishes and precincts, and the old, industrial heartland, can barely keep up.

All on Board

It should be obvious that spending more than your income – with no plausible plan for bringing the two numbers into balance – will eventually cause bad things to happen. But the longer they don’t happen, the more people permit themselves to think they will never happen.

Over time, everybody gets on board. Republicans used to preach balanced budgets; now, they are happy with the biggest deficits in peacetime history.

They used to preach free trade, too; now, they support the highest tariffs since Smoot-Hawley… nearly the highest in the developed world.

Even hypocrisy goes out the window. Instead of claiming to support free market capitalism, billionaires and conservatives now say it needs to be “reformed” and “controlled” – as if you could teach the wind not to blow so hard or stretch the days to give you more time to enjoy your evening beer.

Which is why we are not on the Trump bandwagon.

Details to follow…

Regards,

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Bill

TRADING INSIGHT: A SIGNIFICANT WARNING SIGN

Editor’s Note: Regular readers know investment strategies aren’t our normal beat here at the Diary. But Jeff Clark is a master trader with over 36 years’ experience. All that experience has led him to some bold calls over his career. And today, he’s got another one: The stock market may be heading for a crash later this year…

By Jeff Clark, Editor, Delta Report

“It’s all hype…” “It’s clickbait…” “It’s fear-mongering…”

That’s just some of what folks are saying about my prediction that the stock market will crash this year.

I can’t blame them for being skeptical. After all, the financial industry is full of folks who make scary predictions just to capture headlines and get their “15 minutes of fame.”

But what if I’m not one of those people?

What if I’m just a guy who has been following the financial markets for nearly four decades? What if I’ve made plenty of bold calls – many of which have been dead-on accurate? And what if I’m noticing that many conditions in the stock market today are eerily similar to the conditions that preceded bear markets before?

Folks… that’s not fear-mongering. That’s just suggesting, as the storm clouds build in the distance, that you might want to carry an umbrella.

Let me show you just one of the things that has me concerned. Take a look at this monthly chart of the S&P 500 plotted along with its 20-month exponential moving average (EMA)…

Chart

Longtime Delta Report subscribers know I use this chart to define bull and bear markets. If the S&P 500 is trading above its 20-month EMA (the blue line), stocks are in a bull market. If the index is trading below the line, the bear is in charge.

The Moving Average Convergence Divergence (MACD) indicator at the bottom of the chart provides one of the early warning signs of a bear market.

Without getting too complicated, if the black MACD line is trading above the red line, stocks are in a bull market. When the black line crosses below the red line, traders need to be on the lookout for the bear.

Notice how in 2000 and 2007, the MACD indicator gave us that “bearish cross” from extremely overbought conditions. In both cases, the S&P 500 dropped into a bear market a few months later.

Of course, you’ll notice the S&P 500 also dropped below its 20-month EMA in 2010 and 2011. But, in both of those situations, the MACD was more neutral than overbought. There wasn’t a bearish cross in 2010. And in 2011, the bearish cross reversed just one month later.

So, we didn’t have the conditions necessary for a bear market.

Today, though, the storm clouds look a little more ominous.

The MACD indicator completed a bearish cross last November. And it hasn’t yet reversed (as it did in 2010 and 2011). That’s a significant warning sign.

The stock market has recovered from December’s breakdown. And the S&P 500 did manage to make a new all-time high in April. But that action has created negative divergence on both the MACD and the Relative Strength Index (RSI) indicators.

Negative divergence – when a chart makes a higher high but an indicator makes a lower high – tells us that the momentum behind the rally is waning. It’s a sign of a potential change in trend from a bull market to a bear market.

This is just one of the reasons that suggests to me that the stock market may be heading for a crash later this year. I’ll share a few more reasons in a special presentation tonight (click here to reserve a seat).

For now, the S&P 500 is still trading above its 20-month EMA. So the bull market is still intact. But there are plenty of caution signs.

So, like I said earlier, you might want to carry an umbrella. You know… just in case.

– Jeff Clark

P.S. Like I said above, tonight is the night I give all the details on the stock market crash I see on the horizon…

And if you’re invested in this market, your portfolio is at risk. That’s why I want to share my Delta Report strategy with you… and how you can protect yourself, and even profit, when it all comes crashing down.

There’s still time to reserve your seat for my presentation tonight at 8 p.m. ET. Click here to lock in your spot.

FEATURED READS

Five More Chinese Tech Companies Face U.S. Blacklisting
President Trump recently threatened to cut Huawei off from vital U.S. suppliers. And five more Chinese tech companies now face similar bans. Such a move would further raise tensions between the two countries, leaving some to ask… is this a direct shot at China’s corporate champions?

Why Workers Are Leaving Big Cities Behind
The trend of the last decade has been a migration to the big cities. The lack of job opportunities in rural areas caused many to relocate to economic hotbeds. But now, that trend seems to be changing… at least for those without a college degree…

Imagine That the Stock Market Is a Game Show…
You’ll never go broke taking profits. That’s what the old-timers on Wall Street will tell you. And as this master trader sees it, when it comes to investing, you take the money… and ignore what’s behind curtain number two.

MAILBAG

Today, dear readers break down win-win deals and share feedback on Bill’s new book. But is our editor being “a bit hard on Donald [Trump]”?

I like your description of win-win rights. Things we can all enjoy. I have thought a lot about the rights of man. Whenever non-existent rights are claimed, people are endorsing theft. So the important question is, what do people really have a “right” to have? Life, liberty, and property are historically understood to be human rights. Rights to medical care, housing, food, shelter, and internet, are claimed more recently by dimwits.

Life – we all have a right to our life. Whether you believe you were endowed with it by a Creator, or you evolved from something that came from nothing, your life is uniquely and demonstrably yours. Liberty is conducting your life in a way that does not take from others. Property is acquired by using your life to get it, or by receiving it from someone else as a free gift or in a win-win exchange.

Life, liberty, and property can all be refined into one idea. Each person has an absolute right to their life. Conversely, they have no claim on any one else’s life.

– Stephen J.

A bit hard on Donald. If one believes that China does not have anyone’s but their own best interest at heart, then Donald is doing what he believes needs to be done to stop them from some of the practices that are not ethical, if that counts any more. What had previous presidents done? Nothing except go along with the pilfering and conditions set by the Chinese. Supply channels can be re-routed and re-established elsewhere. And should be. Let the Chinese earn our patronage.

– Robert B.

I read your new book and I believe it is a contribution to knowledge. Thank you for sending me a copy. I love the way you use surprising facts to make a point… I wish you well and hope you have another bestseller.

– Fred C.

Editor’s Note: If you’re a subscriber of The Bonner-Denning Letter, you can find a copy of Bill’s new book, free of charge, right here. If you’re not a subscriber, you can read a preview of the book right here.

IN CASE YOU MISSED IT…

Tonight, master trader Jeff Clark is revealing the exact day he believes the market may crash.

You’re not going to hear this from the mainstream media. And most investors will panic. But traders have the chance to potentially make a fortune… especially if they use Jeff’s strategy.

This could be your chance to see windfall profits as the market crashes. Tune in tonight, at 8 p.m. ET, for all the details. Reserve your seat for this event now.

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