POITOU, FRANCE – Bannon is gone. And Priebus. And Spicer. And Scaramucci.
And Donald J. Trump?
Reckless, vain, juvenile, untutored, swinish – he was refreshingly blockheaded.
And now, he may be gone, too… tamed by the “adults in the room.”
More War, More Debt
Yes, the thrill is gone… the spontaneity… the honest lies… and the irrelevant surprises. Mr. Trump has been broken.
Kelly, Mattis, McMaster, Cohn, and Mnuchin are in charge. But these Pentagon bureaucrats and Wall Street hustlers may be worse than a loose-cannon president.
More dangerous. More sinister. More grasping and ruthless. And not the least bit amusing.
Now we know where this administration is going – more war, more debt, more regulation, more old-fashioned corruption and claptrap.
Direction unchanged, in other words.
And we know what that means, at least for the economy.
Backing up to bring new readers fully into the picture… the problem with America’s economy is the “swamp” of regulations, legislation, and financial obfuscation caused by fake money and financial repression.
It festers with double-dealing. It slithers with politically correct, crackpot ideas. It puts a slime over the entire market system.
Try to march through it and you soon sink into the mud. The Dodd-Frank Act alone added 848 pages to the 39-page Glass-Steagall Act… along with 22,000 pages of additional regulations!
With this kudzu blocking your path, it is hard to set up a new business. (According to the Brookings Institution, more American businesses are dying than are being born.) And without new businesses, GDP growth stagnates.
But the “swamp” is no accident. It didn’t “just happen.” Instead, it grew as the “adults in the room” realized they could use the power of the government to get what they wanted.
Backing up still further, there are only two ways to get ahead: You make or you take.
You can do a win-win deal with your neighbors – a voluntary deal where both parties expect to come out ahead. People work for each other. They trade with each other. They save and invest their money with each other.
They do unto others… well, you know.
These deals make us richer and better off; that is why we do them.
Some people, however, find it easier to rip off wealth from others rather than earn it for themselves.
Typically, they turn to politics. The government has a monopoly on force. So the overwhelming majority of win-lose deals are done with the connivance of the feds.
As time goes by, the influence of the takers grows – more laws, more regulations, and more programs that reward only the insiders. The government becomes a tool for these people to get what they want – by taking it from the productive, win-win economy.
We saw this process on display on Monday, in Donald Trump’s landmark speech on Afghanistan.
Citizen Trump argued for years that meddling in Afghanistan was a “waste” and that we should “get out.”
But now things have changed. He is President Trump now. And Donald J. Trump’s momma didn’t raise no fool. The POTUS explains:
My original instinct was to pull out – and, historically, I like following my instincts. But all of my life, I’ve heard that decisions are much different when you sit behind the desk in the Oval Office.
That’s right. When you’re president, you answer to the Deep State, not to the people who elected you.
The public creates wealth; the Deep State takes it. The voters elect their president; the Deep State tells him what to do.
In a democracy, the government gets its authority from the citizens; the Deep State doesn’t give a damn. It makes the important decisions.
And so it came to pass that the foreign policy that Mr. Trump wanted and the voters chose was cast aside in favor of the policy favored by the insiders.
Even The Washington Post – the Deep State rag of record – applauded:
President Trump offered in his speech on Afghanistan Monday a rare but welcome story of self-correction. His “original instinct,” he said, was “to pull out” of the country, but after studying the issue with his advisers over several months he realized that “the consequences of a rapid exit are both predictable and unacceptable.”
That was the right conclusion, and Mr. Trump deserves credit for changing his position in a way that is likely to displease some of his political supporters.
Gunmen and Goldmen
But why would the Deep State want to continue a war that has been so unproductive?
The answer is simple: It pays.
This is no respectable World War II-style conflict… and no citizen army that fights it.
Today, the “war” helps the top brass gain perks and power that only a billionaire could have in the productive economy. And crony contractors use it to get bonuses and stock options!
There are two and a half times more crony contractors than actual troops in Afghanistan. Altogether, they’ve already sucked $1 trillion out of the Main Street economy.
This year, they’ll get another roughly $45 billion – more than twice the annual output of the entire Afghan economy.
This is the “swamp” that Donald Trump promised to drain. Alas, it has drained him.
People are neither always bad nor always good, but always subject to influence. Mr. Trump, no angel, is now fully under the influence of the devils he brought in – his Gunmen and his Goldmen.
This month, the Gunmen brought the president into line; the Deep State’s foreign wars will continue unchallenged.
Next month, the president will face another test: The money will run out, and the debt ceiling will block more borrowing.
Then, the Goldmen will tell him what to do.
Market Insight: Small-Cap Valuations Are Overstretched
BY CHRIS LOWE, EDITOR AT LARGE, Bonner & partners
To say stock market valuations are “overstretched” is an understatement.
Today’s chart looks at the price-to-earnings (P/E) ratio of the small-cap Russell 2000 Index.
According to the company that created the index, FTSE Russell, it trades on a P/E ratio of 25.6.
But this ratio is skewed by including companies with big losses – a common creative accounting trick that makes the index look cheaper than it really is.
You can’t have a price-to-earnings ratio without earnings. A fairer way to value the index is to strip out the companies that are losing money – nearly a third of the companies that make up the index.
This brings the true P/E ratio of the Russell 2000 up to 78.7.
As you can see, that’s higher than the Russell 2000’s comparable P/E ratio at the stock market’s 1999 and 2007 peaks… both of which preceded major collapses.
– Chris Lowe
Wall Street Banks: This Bull Market’s Days Are Numbered
Even as U.S. stocks continue to hover around all-time highs, Wall Street banks are warning that the good times won’t last much longer…
What Will Cause the Next Quant Meltdown?
Quant funds pick investments based on computer models and advanced algorithms. They’ve become popular in the years following the last financial crisis. But with trades becoming more crowded, and leverage soaring, quants could be headed for a painful fall.
What to Do When Government Money Goes Bad
Bill has often warned about the wealth-destroying effects of government and central banks. Here’s one way to protect yourself when your fiat currency goes bad.
In today’s mailbag, readers consider if toppling Confederate statues is akin to rewriting history…
I’ve been following with interest the saga regarding the removal of Confederate monuments. When ISIS was tearing down historic monuments in the Middle East, the whole world condemned them for doing so. Perhaps the people who would tear down these historical Confederate monuments should take a step back and consider their actions in relation to what others have done throughout history.
– Ashley M.
Before you get any more reverential about “national artifacts,” keep in mind that most of these statues were deliberately erected by the United Daughters of the Confederacy in order to perpetuate their myth, i.e. their version of the Civil War. Had it not been for the righteous efforts of those good ladies, there probably would not be anywhere near as many reminders of these men of dubious merit.
– Helen L.
America has become a land of no common values, no consensus and perpetual conflict. There will be no meeting of the “minds.” Since we can’t agree on anything, we should auction off all public statues to the highest bidder. Each owner could do whatever they please with their statue. Proceeds from the sale could be used to pay public expenses of the public entity involved. As a matter of fact, we could extrapolate this procedure to include all public property, pay down the public debt, and dissolve the State. End of problem.
– Steve C.
I think getting rid of statues that are reminders of historical events is essentially erasing history. I’m pretty sure all the pharaohs of Egypt were slave owners, but they won’t be tearing down the Sphinx anytime soon…
That said, I have a hatred for “public art” and anything we can do to prevent public funds from being spent on art is a good thing: art is too important to be curated using politics. Let people put these things on their own property.
– Sandra K.
Those idiots in North Carolina who were shown spitting on the “downed” Confederate soldier most remind me of a pack of dogs barking at the bones of a bear.
– Doug M.
The problem with the “lefties” is that they don’t think big enough! Tearing down Confederate monuments is peanuts, small time. They need to go where the “action is.” Think the West Bank of the Nile River. Of course, most of them don’t have a clue where that is. There stand many monuments to the horrors of slavery. Here is your chance to really show what you are made of. Who could possibly stop a determined group of people who want to correct a terrible wrong?
By the way, don’t forget to bring a few hefty crowbars because some of those stone blocks are heavy…
– James C.
I always find your Diary to be informative and entertaining. But your Monday essay about the Confederate statues really hit the nail on the head. Thank you for the voice of reason – it’s so hard to find these days.
– Allison M.
Thank you for saying what others ignore or are afraid to say! Your wisdom comes through every day! I and others need that wisdom to cope with today’s world! Thanks again!
– William C.
In Case You Missed It…
As Bill has said, cryptocurrencies like bitcoin aren’t investments yet. But if you’ve been interested in speculating with these new cryptos, this could be worth your while…
Tomorrow, colleague Teeka Tiwari is hosting a live cryptocurrency Q&A session… and answering the questions on every reader’s mind, like “What’s driving cryptocurrency prices higher?” and “Is the crypto bull market just getting started?”
To help you prepare, Teeka created this members-only site… featuring training videos, the chance to submit your questions, and more. You can submit a question to Teeka in advance here.