YOUGHAL, IRELAND – Investors bid the Dow into positive territory yesterday. By nightfall, they probably regretted it.
For along came the president of the free world… unbowed – and perhaps unhinged – with a shocking announcement.
The Constitution clearly gives Congress the power to tax. Even George III couldn’t tax the colonies without parliamentary approval.
But last night, Donald J. Trump, on his own say-so, imposed a new tax on Americans importing goods from Mexico.
We never expected Trump to go Full Retard with his trade war schtick. His own wealth, his reputation, and his re-election are at stake.
And yet… there he goes.
And so zany is the thinking behind this latest move that many people are beginning to wonder: Is this president just dumb… or completely nuts? “Borderline crazy” says a Bloomberg headline.
Countries take responsibility for securing their own borders. They cooperate with other countries to police them. Occasionally, they put up walls. Or even seal them off completely.
But this is a first. The Donald is taxing Americans to force the Mexicans to protect the U.S. border. But if the U.S. can’t stop people from sneaking across the Rio Grande, how is Mexico supposed to do so?
We don’t know. But this buggy stock market must be looking for a windshield. And Mr. Trump has put a fleet of them out on the roads.
Most Important Ratio
But, for now, let’s return to our topic from yesterday…
Markets make opinions, we reminded readers. Ours as well as everyone else’s. Markets go in cycles, like everything in the natural world.
And one of the biggest, most important cycles is the shift from win-win to win-lose… from greed to fear… from trust to suspicion… or as a dear reader put it, from pollination to predation.
Sometimes, you get ahead by working and trading. Sometimes, the best you can do is not get ripped off. Always and everywhere, the two strategies co-exist.
A society is a natural thing. It must breathe in and breathe out. It must allow deep breaths of bold confidence and innovation. And it must exhale, too – in moments of panic and desperation.
That’s why this is the most important ratio in capitalism – the ratio of fear to greed. It is captured in the relationship of cash to stocks… or, in our favorite version, the relationship of the Dow to gold.
When people are greedy, they buy stocks. When they are fearful, they prefer the yellow metal. The ratio is now almost at 20. It takes 20 ounces of gold to buy the 30 Dow stocks.
To put this in perspective, the Dow-to-Gold ratio hit an all-time low in 1980, when you could, briefly, buy the entire Dow with just one ounce of gold. The all-time high came in 1999, when it took 41 ounces.
But 1999 was an outlier. It marked the end of a long period in which the world economy, generally, grew freer, more open, and more prosperous – with more and more win-win deals almost everywhere – than at any time in history.
The first big milestone came in 1979, when Deng Xiaoping, leader of the world’s most populous nation, announced that “to get rich is glorious.” Henceforth, China was open for business.
The next big event came 10 years later, when the Soviet Union abandoned both communism and its empire.
Then, in 1993, perhaps the crowning achievement of the whole movement, the European Union was set up. It was essentially a free-trade zone big enough to rival the United States.
For more than half a century, American capitalists were in the leading ranks of this march, spreading their creed all over the world.
First, they sold U.S. products to foreigners. Then, they bought foreign products and sold them to Americans. And then, their business schools created a global culture in which almost everyone believed in free trade and capitalism.
But now, the tide seems to have reversed. All over the world, people grow old… and want protection from life’s risks and challenges. Even in Europe, the Italians want protection… from the French.
“The Italians in Italy. The French in France,” say the Italians, protesting the sale of Parmigiano Reggiano to French investors.
“Brexit Now!” demand the English.
“STOP” says The Donald’s latest tweet.
But this big sea-change didn’t just happen yesterday. It started 20 years ago.
“Sell stocks, buy gold,” we advised readers back in 1999. Here at the Diary, our memory is neither good enough nor cruel enough to recall all the things we have gotten wrong. But we weren’t wrong about that.
The Dow, measured in gold, lost 82% of its value over the next 10 years. Gold, meanwhile, climbed 388%.
But then, something happened that puzzled and bamboozled almost all of us. The feds pumped $3.6 trillion into the stock market via quantitative easing (QE)… and another $11 trillion via fiscal deficits.
The Dow tripled. The Greed/Fear ratio popped up, from a low of 7 to the present 20.
Most commentators, kibitzers, and blah-blah mongers concluded that the tide had turned again… towards greed. “Buy, buy, buy,” they said.
But had it? Or was fear still the dominant zeitgeist… the prevailing sentiment… the hegemon emotion?
Today, we stand by the road and gawk – watching stock market bugs collide with Donald Trump’s windshield.
Next week, we will look more closely at the Most Important Number in Capitalism… why its rendezvous with doom was interrupted… and what it may tell us about what comes next.
MARKET INSIGHT: THE “CRYPTO WINTER” HAS THAWED
Editor’s Note: Regular readers know that Bill is skeptical of cryptocurrencies like bitcoin. But one of the core missions of the Diary is to examine the ever-changing nature of money.
So today, we share an insight from renowned crypto expert Teeka Tiwari. Read on to see why Teeka believes the “Crypto Winter” has thawed, and why the next bull market is likely around the corner.
By Teeka Tiwari, Editor, Palm Beach Confidential
After almost 18 months, “Crypto Winter” appears to be finally loosening its grip on the market.
That’s why, on April 10, I sent out an update to my Palm Beach Confidential readers. Here’s what I said…
Bitcoin is probably going to go anywhere from $6,000 to $7,000 before it has a little bit of a pullback to kind of consolidate that move. And then, it’ll be off to the races again.
And you know as well as I do, anything that’s good for bitcoin is good for the broad market.
A lot of the smaller names that we own will move much further than bitcoin will move. So another 30% move higher in bitcoin could be a 300%, 400%, 500% higher move in some of these smaller names.
Since then, bitcoin is up 60%. It’s trading around $8,285 at writing. And the broad crypto market is up 56%.
But as I’ll show you in today’s essay, it’s not too late to get in…
To understand why, let’s look at the last major bear market we had, before the most recent Crypto Winter.
That was back in 2013, when bitcoin peaked around $1,200. Then, it went on a massive, almost two-year-long bear market.
You can see that it went down to about $175 in January 2015. That’s an 85% plunge.
But then, we started to see the bottom finally come into place. And in late 2015, we got a massive move up.
Now, let’s compare that to a recent chart of bitcoin. You can see the peak in December 2017 in the chart below. The red circle is where we are now.
If you look at the first chart again, in 2015, the selling was finally over. Buyers came in, and they spiked bitcoin up to a level that we hadn’t seen in months.
Now, look at the second chart. That move up since April is a mirror image of what we saw back in 2015, when the bear market was finally over.
But it’s not the only reason I believe prices are headed higher…
The Downtrend Is Finally Broken
The second reason is that the downtrend bitcoin has been in since last year is finally broken.
When you break a long-term downtrend, the overall trend switches from bearish to bullish.
And the way you make money from that is by taking advantage of each pullback.
The pullbacks we’ve experienced in the last 18 months were making lower lows and lower highs. What will now happen is that when bitcoin prices fall back, they will make higher lows.
Now, of course we won’t know that 100% until we see that next wave of selling come in.
But if history is any guide, it suggests we are going to break out to a new level, and then come back a little bit. And then, we will see another resurgence of prices.
I’ve been waiting for that downtrend line to be broken… and for a major move that indicates that buyers are starting to get impatient. And that’s exactly what we’ve seen take place over the last couple of weeks.
Does this mean we’re never going to have volatility again? No. Of course not.
What it does mean is that we will see a series of higher lows and higher highs – the definition of the beginning of a new uptrend.
Given the recent surge in volume and interest we’ve seen in cryptos, a shock of good news could completely change the game.
Then, it would be like 2017 all over again. And I want to make sure we’re prepared for it.
Just remember, you only need to take a small stake for the potential of life-changing gains. So position-size rationally when you’re buying cryptos… and continue to be patient.
We are at the very beginning of a new uptrend in crypto prices, and it’s going to be wild. It’s going to be much bigger than what we’ve seen before.
Let the Game Come to You!
– Teeka Tiwari
P.S. On Wednesday, I held my first ever “Ask Me Anything” webinar. During the live Q&A session, I talked about: Why bitcoin is breaking out right now… why history shows that the smaller, lesser-known cryptos are about to follow bitcoin’s lead… and what to expect for the second half of 2019…
If you missed the live event, the most important takeaway was this: You have a small window of time to position yourself for huge, life-altering gains in this new crypto bull market.
You can watch a replay of the webinar – and learn how to claim a free year’s subscription to my Palm Beach Confidential research service – right here.
Meatless Burger Startup Faces Stiff Competition
Plant-based meat substitutes are becoming more popular. Beyond Meat, a startup that specializes in making meatless burgers, is leading the charge. Its stock price has soared since its initial public offering earlier this month. But the future of the meatless revolution is crowded with established companies looking to cash in on the trend.
China’s Secret Weapon in the Trade War
China has prepared a backup plan in case the trade war with the U.S. continues to heat up. The country plans to exploit America’s reliance on a specific group of metals, which have a wide range of applications… and which America only imports from China.
Regulatory Group Proposes Curbs on Blockchain Tech
Cryptocurrencies have one huge advantage over fiat. You can trade crypto-assets privately, without anybody knowing your business. But a regulatory agency just took aim at cryptos. And there may be a hidden motivation behind the proposal.
Today, our dear readers continue to debate whether your editor is treating Trump fairly… or whether he’s being too hard on our commander-in-chief…
Thank you for being a voice of reason at the circus! Most, in fact virtually all, of the programs and “get rich quick,” shiny-object schemes are designed to hurt people like me. Retirees who don’t want to find themselves fighting with their cats over who gets the pâté. Your information is honest and real and much appreciated. I loved your comment, “too rich to care.” RIGHT ON! If only they were all like you! Namaste.
– Ramona S.
I think President Trump is doing a great job, working with what he’s got. I find it very disheartening that you think he isn’t making America great again. How about you help him instead of finding fault? Your coffers are growing, aren’t they? Or are you part of the problem?
– Vanessa H.
Meanwhile, other readers write in with thanks for our editor’s insights and tales from abroad… including one reader who’s been a fan for a long time…
Hi Bill, I’m an old Scotsman living in the mountains here. With degrees from Cambridge (England) and Harvard, though.
I was impressed by your talk many years ago at the MoneyWeek conference in London, when you told us that you were a failed economist (!). Your peripatetic lifestyle is impressive, though I would tire of the air travel. Anyway, great story about the wine; I’m sure it will sell out in an instant. Keep up the letters… they’re always a breath of fresh air.
– Duncan S.
I wish I could tell Bill Bonner how much I appreciate his dry-but-rich ramblings about the world as he knows it. I never fail to chuckle a bit as I read the Diary… most recently, his description of older gentlemen having dinner with their daughters. And the description of the wrong truck episode in Argentina had me laughing out loud. Bill, I am envious of the ease with which these words roll off your pen (or your computer, I suppose).
– Charles M.
Editor’s Note: Bill can’t always respond to each and every reader. But he does read every piece of feedback that comes in. So keep writing in with your thoughts on The Diary. Bill always appreciates hearing from dear readers.
IN CASE YOU MISSED IT…
Did you watch crypto expert Teeka Tiwari’s “Ask Me Anything”?
He was one of the first experts to predict the crypto boom of 2017. Those who followed his recommendations could have pocketed up to 14,354% in as little as six months…
And on Wednesday night, he answered dozens of burning questions from crypto enthusiasts. You can still access the exclusive replay right here. But you’ll want to hurry… it gets taken down at midnight tonight.