Editor’s Note: Bill is currently in Bermuda, speaking before readers attending the Legacy Investment Summit. In lieu of our usual Diary, our editor offers the below excerpt from his speech.

In it, Bill reveals why, even in a world of seemingly infinite amounts of fake money and information, limits still have a way of imposing themselves. And he shows why time – the ultimate finite resource – is running short…

I need to apologize for not sticking more closely to the script. I promised to tell you about Calvin Coolidge and his Treasury secretary, Andrew Mellon.

But when you sit down to compose a speech… you never know exactly where it will lead you. You want to react to what has been said so far. And I found Coolidge and Mellon to be rather less important, at least to my point, than I expected.

The short version of the story is that Coolidge cut taxes, still ran a surplus, and paid off a quarter of the national debt.

When the Crash of ’29 came, Coolidge was already out of office, but his Treasury secretary, Mellon, had been picked up by Herbert Hoover, and he brought the spirit of the Coolidge administration with him.

So when the stock market crash came in 1929, Mellon knew what to do: Let it burn itself out. He knew that a limit had been reached – and that the crisis was getting rid of bad debts and bad investments… so that the economy could get back to work on a more solid foundation.

In the 1920 Depression, the feds stayed out of it and the economy quickly recovered. But in 1929, instead of letting the markets correct mistakes, the feds intervened. The result was a long, drawn-out period that we know as the Great Depression.

And today, the feds are intervening more than ever.

Always Limits

Instinctively, we know that there are always limits. There are things that are true, whether you believe them or not.

Gravity doesn’t stop working just because you don’t believe in it. You can’t make people rich by giving them pieces of paper with green ink on them. And stocks don’t go up just because you need more money in your retirement account.

The old-timers say, “Money doesn’t grow on trees,” and, “Trees don’t grow to the sky.” The first one seems obvious. But the second one always seems a little lame… because trees do grow up to the sky. Where else are they going to grow?

But the idea is right. There are limits.

We know that stocks aren’t infinitely valuable. We know that we won’t live forever… and that something always happens to prevent things from getting too far out of whack.

Or to put it another way… Things get out of whack, but then always get back into whack somehow.

There are feedback loops… there are corrections… and there are reckonings. There are alarms that go off… bells that sound the hours to tell us when we’re staying up too late… and headaches to tell us when we’ve had too much to drink.

There are bosses to tell us when we’re doing a bad job… and priests to tell us when we are bad people…

And there are husbands and wives – that’s what they’re for… among other things – to remind us that we are idiots and tell us when we are acting like fools.

There are limits. The biggest of them all is time. And here’s the idea…

Credit is offered by the Fed and the banking system. It is used by Wall Street to run up asset prices. But it is paid back by the Main Street economy.

This debt is offered in dollars, yuan, yen, or euros. But it is paid in time.

We need to spend the time earning the money to pay the interest and principal on the outstanding debt. And we are running out of time.

It’s always time we run out of…

We meant to save for our retirement… We meant to stop eating so much… We meant to spend more time with our parents when they were still alive, or more time with our children when they were still little.

But we didn’t have enough time. We ran out of it.

It’s always time, not money. The richest person in the world runs out of time, just like we do.

We meant to say something to someone we cared about… but time got away from us.

We would have… we should have… we could have… but each time, we ran out of time.

Great Mischief

We humans are capable of great mischief. We make big mistakes sometimes. All you have to do is read a little history and you will find us doing – collectively and individually – such dumb things as to take your breath away.

Take Napoleon’s invasion of Russia, for example. His own officers begged him not to do it; it was so reckless and hopeless…

The pyramids absorbed the entire surplus economic output of a whole civilization over perhaps 1,000 years…

With communism – in which people submitted to outrageous central planning and got poorer over 70 years in Russia and 30 years in China – all you had to do was look across the border to Hong Kong… West Germany… Singapore… or Japan…

Or right now, just look over the border from North Korea, and you would see clearly that the Soviet/Communist Chinese experimental system of a centrally planned economy is a failure.

The only things they could produce reliably – and in sufficient quantity – in Russia were vodka, cement, and gasoline. And sometimes, you couldn’t tell the difference.

People drank so much vodka that the life expectancy in Russia went down… and continued to go down even after the Soviet Union disappeared.

Looking back at it now, we just open our mouths and wonder: What were they thinking?

In our private lives, errors are corrected more readily and more easily – without too much suffering.

The bad cook opens a restaurant, and he soon goes out of business. The careless electrician forgets to turn off the juice and gets electrocuted.

The man who forgets his wife’s birthday… the drunk driver… the musician who is tone-deaf… the cross-eyed tennis player… the salesman with a permanent frown… the blind truck driver… the dance instructor with two left feet…

You get the idea.

Every day, in millions of transactions, error is punished. Success, truth, and competence are rewarded. That’s how a society – and an economy – is supposed to work.

It’s why, generally, things get better, not worse. Because mistakes and incompetence are weeded out.

But in public life – that is, in our collective lives – mistakes are not readily corrected. Instead, they’re made the law of the land. They’re obligatory. That’s the big advantage – and the terrible temptation – of allowing governments to boss us around.

They can do things that we would never… ever… do ourselves – if we had any real choice in the matter. They can do things that we know, instinctively, won’t work.

But “dress’d in a little brief authority,” as Shakespeare put it, the feds do things that make the gods weep. Things that are stupid, and catastrophic…

They say, “What goes up must come down.” But the feds can keep kiting checks for far longer than you thought possible.

So I tried to figure out what the limit really is. I mean, the feds can put out an almost infinite amount of money… or at least, fake money. And once an economy comes to depend on fake money, the feds can keep it supplied almost indefinitely.

So what’s the limit? What goes wrong? Where is the brick wall that we know, instinctively, is out there somewhere?

As you will see, of course, it’s time.

Debt Time Bomb

The world now has $250 trillion worth of debt. That debt depends on two things: 1) Low interest rates, and 2) World trade. Low rates allow debtors to roll over their debt. And trade – sales and profits – allows them to keep up with the interest payments.

And now, both of those things are in danger. Central banks are raising rates – almost all over the world. And interest rates have been going up on their own, with mortgage rates in the U.S. now hitting the 5% mark… and the 10-year Treasury bond yield solidly over 3%.

What we are looking at is one of those great mistakes of history, where fake money from the U.S. created a whole fake worldwide economy – with loans that should never have been made… products that should never have been produced… buildings that should never have been built… and debts that now can’t be repaid.

And we can measure it… in time.

Because there’s a limit to how much time a person can reasonably spend servicing debt. Traditionally, debts generally measure about 1.5 times output.

In other words, for every day you spend working, you can afford debts equal to a day and a half’s wages. And that’s why interest rates are so important.

So if you earn $100,000 net of taxes, and you owe $150,000, at a 2% interest rate, that means you will have to spend seven-and-a-half days to keep up with your repayments.

But the debt-to-output ratio in the U.S. today is 3.4-to-1. So the guy who makes $100,000 after tax owes $340,000. And at a 5% interest rate, he has to work two months just to keep up.

He’s running out of time.

Out of Time

Time is what gets us all. We run out of it. Everyone in this room is running out of time. And it can’t be stretched. It can’t be printed. It can’t be saved up, stitched up, or revved up.

It waits for nobody and no thing. And all we are left with are regrets.

We wish we had used our time better. We wish we had begun saving for our retirement earlier. We wish we had taken the time to learn Spanish or how to play the piano…

We wish we had bought Amazon 20 years ago when we first called it the “River of No Return”…

And yes, time is money… and pain.

(Yes, most speakers hope to make their audiences cheer in approval. I only hope to make them weep.)

And as time is running out, another monumental disaster is coming.

Not because we’re running out of money. The feds can produce all the fake money they want. Instead, we’re running out of time.

The BBC reports that global income is about $70 trillion, with median household incomes of about $10,000 – or about $5 an hour. Global debt is the aforementioned $250 trillion.

At a 3% interest rate, that’s $7.5 trillion per year interest, or 1.5 trillion hours of work… That’s about 300 hours for every working adult… or about two months of the year.

Now, raise the interest rate to 5%… and what happens is obvious…

You run out of time. And you can’t cheat time.

Already, working one-sixth of the year to pay interest is hard, but maybe not impossible. But raise the interest rate to 5% and you have to work nearly three months – just to pay the interest. The world doesn’t have that much surplus.

For the last 47 years, the feds have been putting out fake money. Debt has increased three to five times faster than income.

Interest rates were largely the result of central financial planning by the Fed… As much as $11 trillion was quoted at negative rates of interest…

And investors really do buy Amazon at a price so high, even if they paid out every penny of earnings in dividends, it would still take shareholders hundreds of years to get even.

But just as we are all running out of time, so is the feds’ huge bubble-finance economy. The business expansion is in its 112th month – the longest on record. The stock market is also the longest uncorrected bull market in history.

The clock is ticking.

Thank you.


By Joe Withrow, Head of Research, Bonner & Partners

Federal regulations are back on the rise…

That’s the story of today’s chart, which maps the total pages in the Federal Register by year, going back to 1938. The Federal Register is a digest that the federal government has published every day since the 1930s.

It contains regulations, proposed regulations, rules, notices, corrections, and presidential documents from all federal agencies. For this reason, it’s often viewed as a proxy for the level of regulation in the American economy.


As you can see, the Federal Register contained a few thousand pages back in the 1930s. But by 2016, it had ballooned up to 97,110 pages – each page containing win-lose edicts.

Sticking to campaign promises, the Trump administration cut 35,000 pages from the Federal Register in 2017. That was 36% of the entire regulatory register.

But that trend has reversed this year, as 4,100 pages have been added to the Federal Register so far in 2018.

As Bill has written in the past, excessive regulation slows down commerce and stifles new enterprise. By its nature, regulation replaces win-win deals with the win-lose proposition of government force and coercion.

If the uptick in regulation continues, it will ultimately be a drag on the economy and new business creation.

– Joe Withrow


Are Investors Turning on This Bull Market?
Last week, the stock market plunged. The S&P 500 fell more than 5% over two days, erasing 80% of the year-to-date gains. But there appeared to be no consensus on what caused the drop. Now, one possible answer is emerging: Investors simply no longer trust this bull market.

California Is Growing More Than Grapes in Its Vineyards…
California, known for its world-class vineyards, is undergoing something of a transformation. In the heart of wine country, you’ll still find vineyards with grapes on the vine… But you’ll also find something else.

Why You Should Own Fewer Stocks… And Hold Them Forever
Most dear readers are looking for ways to be better investors. In this essay, Chris Mayer, one of Bill’s ace stock pickers, reveals one of the best ways to get rich from stocks: buy fewer of them… then forget you ever did.


In the mailbag, a Dear Reader considers the fate of Sears

I have been a Sears shareholder for many years now (and, of course, losing tons of money so far). However, the investment play that Lampert, Mnuchin, Berkowitz, Tisch, and others saw more than 10 years ago in Sears was a dying retailer in a very competitive and changing retail sector, but a company rich in assets, which were significantly undervalued. Of course, from today’s viewpoint, the transformation Lampert started more than 10 years ago and the monetization of the assets has not performed as expected. But the game is not over until it is over.

I do not know if Sears will get out of the current situation or not… But this is not finished yet. Eddie Lampert owns 50% of the company, is the larger creditor, has been receiving salaries in the form of stocks (not cash), has been providing liquidity to the company, is an expert in bankruptcy, and has been financing the pensions (large deficit). If he had wanted to squeeze everyone, he could have done that years ago.

Of course, results are against him. He probably could have done many things better, but this is reality. I think that your comments on Sears and Lampert in the Diary were kind of shallow, and you used them because they fit the ideas you wanted to express. Of course, you may feel differently, but I wanted to share my thoughts with you.

– Norm K.

Meanwhile, Bill’s Diary, “The Foxes Are in Charge of The Swamp” gets readers talking…

You enjoy lighting up the usual problems that fiat money and toothless politicians generate. I would appreciate if you could please review the effort by Trump to reduce regulations and rules within all the executive branches. This seems like a bright spot.

– Dennis C.

Not a Republican problem? Who implemented a tax cut without cutting revenue and/or implementing a revenue increase? Trump is a phony business person, as evidenced by numerous bankruptcy filings, business failures, screwing vendors, and generally being a dumb egotistical schmuck. Trump has sunk below the Swamp and into the sewer.

– Ron C.

As usual, you were spot-on, describing the magicians’ antics the Swamp critters use to distract us from paying attention to what they’re really up to. It’s all smoke and mirrors – prestidigitation. Problem is, you never take it quite far enough. Not only do the slimy bastards instill an “us versus them” mentality in Americans, they supply the proverbial battle lines: white versus black, Christian versus Muslim, liberal versus conservative, citizens versus immigrants, etc. ad infinitum. They have us fighting one another on so many fronts to keep us from the realization that we should be fighting them – the common enemy of all. If Americans ever shake off the fog that hangs over the Swamp to take a good look at what is really going on… Watch out!

– Dale A.