GUALFIN, ARGENTINA — We have not had any word from our attorney in the city of Salta, but we assume the case was dropped.

Grand theft auto was the charge (catch up in full here).

But the alleged wrongdoer, your editor, claimed his actions were motivated by stupidity, not criminality.

Our ranch foreman Sergio came and switched the trucks.

With the cops off our trail, we turn back to the financial markets…

Doom Index

A dear reader helpfully suggested that we put together a “Doom Index” – with indicators of an approaching bust.

Our research team in Delray Beach, Florida, is working on it.

In the meantime, one doom indicator we highlighted earlier this week is the flow of credit.

This is an economy that depends on bank lending. If it slows, so does the economy. And credit growth is falling at a rate not seen since 2008.

Another indicator that will surely be a part of our Doom Index is the level of margin debt.

When an investor buys stocks on margin, he borrows the bulk of the purchase price from his broker.

Because he only puts up a portion of the total amount – the margin – he stands to gain more if the market goes up. But if the market goes down, he gets a “margin call.”

He has to put up his shares as collateral for his loan. His broker can now sell these shares (without notifying him) if he doesn’t meet his margin requirements.  

“Markets make opinions,” say the old-timers. When stocks are near an all-time high, investors imagine they will only go higher.

But when they go down, all of a sudden they ask themselves why they ever bought them.

Squeezed and panicked, the margin buyer is forced to sell. And the higher the margin debt, the greater the number of shares that must be liquidated, sending the whole market down even further.

Today’s level of margin debt was last seen near the dot-com peak in 1999.

The Trump Factor

Margin debt figures are “hard data.” They show, in exact dollar terms, that investors are optimistic.

Consumers are optimistic, too. Consumer sentiment figures are “soft data.” They rely on mushy survey results.

But the two line up nicely – hard and soft – at 17-year highs.

On the surface, both types of data are remarkable. Why would investors borrow money to buy shares when stock prices are already as high or higher than ever in history?

The way to make money is to buy low and sell high. These investors seem to have it backward. They are eager to buy shares – on credit – at the highest prices ever seen.

Consumers should be gloomy, too. In fact, the hard data says they are gloomy.

They’re not spending.

Retail stores are closing at a faster rate than any time since the 2008 crisis.

Auto sales have slumped back to recession levels. (There’s a study from JPMorgan Chase that predicts used car prices will fall by half over the next five years.)

And mortgage payments are now the least affordable, compared to wages, than they have ever been.

How to account for such bullishness on the part of consumers and investors?

Donald J. Trump.

No Reagan Redux

Consumer confidence and the stock market shot up after Election Day.

Apparently, consumers and investors thought that Mr. Trump would make things better. But how, exactly, this was to happen has never been made clear… at least not to us.

The “Trump Trade” depended on so many unlikely and remote things.

Even if Team Trump could make fundamental improvements in regulations, taxation, or the deficit, the results wouldn’t show up for years.

It takes years for sensible infrastructure spending to get underway, for example.

After President Reagan took office, stocks fell, not rose. They kept going down for the next 17 months, wiping out 20% of the entire market value.

And that was when the Deep State insiders were just getting started.

Thirty-seven years ago, a determined majority, with a solid grip on Congress and a clear idea of what it was doing, could still control the government. Now it’s practically impossible.

And back then, the reformers had the wind at their backs. You could buy the Dow for one ounce of gold. (Now you need 16 ounces.) The nation had less than $1 trillion in debt. (Now it has $20 trillion.) The 10-year Treasury yield was over 15%. (Now it’s under 3%.)

In other words, investors and consumers had every reason for optimism in the Reagan Era. Things were almost sure to get better.

Now, they had better be careful. The winds have shifted.

Things are almost sure to get worse.

Regards,

Signature

Bill

Further Reading: Below, Porter Stansberry, founder of Stansberry Research, concludes his three-part series on the secret civil war playing out between Donald Trump and the Deep State.

 

The Deep State Exposed – Part III


BY PORTER STANSBERRY, FOUNDER, STANSBERRY RESEARCH


Editor’s Note: In the final installment of his three-part series (catch up on Part I and Part II), Bill’s longtime friend and colleague Porter Stansberry reveals the one thing that could stop Donald Trump’s new economic model from becoming a reality.


Trump has put a metaphorical gun to the head of the Deep State…

And now, the Deep State is fighting back, tooth and nail, to protect the system it has built.

Look at what has happened to the middle class in America over the last 40 years.

Did NAFTA prevent price inflation by allowing America’s consumer economy the luxury of accessing the world’s cheapest labor?

Yes, it did. But the flip side was devastating to the entire manufacturing industry in the U.S. And where did the resulting wealth flow?

To D.C. and to the top 1% of America’s wealthiest people who were able to access foreign markets and shield the resulting income from America’s tax system.

Meanwhile, America remains the only industrial country in the world with global income taxation (you have to pay its federal income tax no matter where you live) and without a value-added tax.

In short, we’ve chosen a system that punishes wage earners while rewarding individuals and corporations who use overseas labor.

The result has been a decline in real after-tax wages over the last 40 years. That’s a recipe to destroy the middle class – and that’s what has happened.

Trump’s plan to effectively lower income taxes to 25% and implement a value-added tax to discourage foreign production of U.S. products will turn this entire economic structure on its ear and disenfranchise the Deep State that controls it.

The winners will be the middle class, small-business owners, wage earners, and America’s manufacturing base.

The losers? Those who have invested heavily in the current Deep State regime.

Why Is This Scary?

Well, unlike the health reform issue, the Metropolitan Man assured me that Trump’s tax reform agenda would certainly pass. “It’s a done deal,” he said.

He told me that his job lately “has been to help major corporations understand what will be in the new laws and how they will impact various markets.” That means the Deep State has been pushed into a corner. What it might do next, no one knows.

“That it would leak a codeword secret… Well, I would have told you that couldn’t happen. I’ve never seen it before, not in more than 30 years in D.C.

“It’s scary because if it’ll do that, it’ll do anything. Stage a terrorist attack? Start a war with China? Nothing is impossible anymore.”

That’s the downside.

The next several months could see our government erupt into open civil war.

The FBI accusing the president of treason… The president accusing a director of the CIA of breaking the law and having him arrested. Who knows where this will lead?

On the other hand, assuming the government doesn’t collapse into a civil war, Trump’s new economic model will become a reality before the end of the year.

For some industries (and for most Americans), these changes will bring massive prosperity. And for others – especially for companies and individuals who have been living at the government trough – tough times are looming.

Porter Stansberry

Editor’s Note: Tonight at 8 p.m. ET, the Metropolitan Man will “take off his mask” and tell you about his role in the Deep State. He’ll explain the importance of the codeword-secret leak. And he’ll discuss what the new Trump economic model will mean for various industries and parts of our country.

He’ll also explain how he knows the tax reform and border-adjustment laws are certain to pass Congress and what those policies will mean for our country. And he’ll tell you about an event that could move groups of stocks in surprising and dramatic directions over the next several quarters.

Get more details here.

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Mailbag

Readers continue to debate the proper role of money in response to Monday’s Diary, “The Credit Money System’s ‘Doomsday Device.’

Money may not be “who we are” but what we use for money says an awful lot about us as a society. Before 2009, I like many believed I had money, savings, a retirement vested and guaranteed.

Economically the work was supposedly done. That crash began a study that revealed the above wasn’t true. I learned that I possessed nothing of actual substantive value beyond what the market would bring on any given day.

At the heart of that issue is what today serves as money. An honest man knows when he borrows something he needs to return it because someone worked for the something and he expects to work to be able to return it.

When the medium of exchange can be created at someone’s will and spent according to that will, that someone is literally the god of all who use this tender. It is quite literally political capital or political money.

You own nothing that can’t be taken by the will of the public via political means. Your savings in the bank can be devalued at the whim of a banker or a president.

– M. R.

I know you advocate a free-market economy because it doesn’t include a lot of public policies that interfere with private life, and Hong-Kong is a place with a free-market economy. Everyone’s saying their economy is fragile, and they’re highly dependent on international trade. Can you put a light on this?

– M. Faruque

Meanwhile, other readers wrote in happy to hear that Bill survived his ordeal published in yesterday’s essay, “Wanted by the Police in Argentina.”

“Wanted by the police.” That’s the best one yet! Bill, you’re not forty. This trip could have ended in disaster!

I live in Colorado. Sand, mud, rocks, ice, snow, mountains, dirt roads, all will kill you. I’m always amazed at people who die every year, in Colorado; challenging our mountains. Even in single engine aircraft, people die every year!

– W. C.

In Case You Missed It…

This one event could make or break Trump’s presidency.

That’s the message from legendary investor Doug Casey. He believes that Trump’s legacy will depend entirely on whether he can handle this one coming crisis.

Hear the message for yourself right here.