BALTIMORE – Well, it didn’t take investors long…

In less than 24 hours, they figured out that the trade war was fake and the “incredible” deal between President T. and the Chinese at the G20 summit was fake, too. JPMorgan commented:

It doesn’t seem like anything was actually agreed to at the dinner, and White House officials are contorting themselves into pretzels to reconcile Trump’s tweets (which seem, if not completely fabricated, then grossly exaggerated) with reality.

The yield curve flattened on Monday as well (more in today’s Market Insight), signaling another wide divide between the “booming” economy advertised by Wall Street and the sluggish reality on Main Street.

Stocks fell, with the Dow down nearly 800 points by the close of day.

But there’s a long way to go. Our guess is that another 10,000 points will have to be lopped off before the pruning is complete.

BS Haze

But let’s turn to our subject du jour.

In Europe, people sneer at the “War on Terror.” They think it’s fake. But they jump in the trenches to stop global warming. They may be cynical about fighting terrorism, but they enlist readily in the great cause of environmentalism.

Then, three weeks ago, under the cover of a dense, choking, BS haze, the French feds ordered an attack. They raised the price of gasoline to $6.50 a gallon. Rather than go “over the top” once more, the taxpayers mutinied.

The French government claims the new tax is part of its program to eliminate fossil fuels and “guarantee cheap and clean fuel for France” by 2050.

In America, too, many people think dramatic action is needed. Typical of the comments you see is this (from a discussion forum):

It all boils down to one thing: We simply can’t take the risk of not fighting off climate change now because some people suspect that it might not be real. We must act.

In the normal course of events, you don’t go to the body shop until you’ve wrecked your car. And you don’t go around stuffing corks in everyone’s mouths just in case they may want to spit on the street.

This is a reflection of what colleague Dan Denning calls the “strategic ignorance” of the human race. We never know what will happen… So you wait to find out. “Life is one long struggle in the dark,” said Lucretius, anticipating Dan by about 2100 years.

But there are exceptions. Sometimes humans take action before something awful happens.

Courts issue an injunction in advance of an event on evidence of the “irreparable harm” it may do. The Supreme Court will even set aside the First Amendment and allow the feds to block free speech if it sees “clear and present danger.” That’s why you can’t yell “Fire!” in a crowded theater just to see what will happen.

But what about climate change? Is it a “clear and present” danger? Will it do “irreparable harm”? Or do we go with the president’s gut on this one?

Donald J. Trump says he doesn’t believe in global warming. The scientists may have charts and graphs… and studies and hypotheses… But President T. has intestines! From the president to The Washington Post:

…I have a gut, and my gut tells me more sometimes than anybody else’s brain can ever tell me.

It must be nice to have such a well-informed digestive tract. But the large intestine is also where a lot of the what-the-trade-deal-turned-out-to-be accumulates.

Still – and here, we rush ahead to a conclusion – we suspect that his instinct is correct, at least insofar as it leads to a policy.

But let’s walk it through…

Controlled Experiment

First, is the earth heating up? We don’t know.

This is something that seems straightforward, the sort of thing scientists should know. But it’s not that clear. Most appear to agree that temperatures are rising. A few dissent. But since it feels warmer to us in the Chesapeake Bay area, we’ll guess that the majority may be correct.

Second, is carbon dioxide – from burning fossil fuels – the cause of it? Again, we don’t know.

The hypothesis has been around for a long time. Alas, there’s no way to know for sure. You can’t do a controlled experiment. There’s only one Earth.

And the observed rate of temperature increase may or may not correspond to increases in carbon dioxide emissions or the predictions made by scientists.

And even if the theoretical/experiential case was airtight, you’re still left with the uncertainty of post hoc ergo propter hoc. (Just because one thing follows another, doesn’t mean the first even caused the second.) If you took away the one (carbon dioxide, for example) you might still get the other (hotter temperatures).

Third, even if you accept the climate change hypothesis to this point – that the world is getting hotter and the sweat is caused by our own carbon dioxide emissions – you still face two major uncertainties…

Field Crops in Greenland

First, is it good or bad? Here, the scientists are powerless to give us an answer. Good and bad are beyond calculation. They are value judgments, much too subtle and too slippery for numbers to compute.

What would it be worth to enjoy a warmer winter in the Great Lakes area? What would more rainfall do to the Sahara?

And rising sea levels sound like bad news for those who own low-lying properties. But our farm, for example, is about 50 feet above sea level. If enough icebergs melt, we might have waterfront property!

Subject to computation, but still not to valuation, is the greening of the planet apparently caused by global warming.

Plants like carbon dioxide. And as carbon dioxide levels increase, so does the amount of vegetation. Crop yields go up. The biomass levels the world can support increase. Grass spreads across the barren steppes. Vines hang heavy with fruit, even in areas that were previously too cold for grapes.

What if we could grow field crops in Greenland, Siberia, and Northern Canada? Would it be worth a tropical storm in Pakistan, a flood in Fort Lauderdale, and an earthquake in the Levant?

What if food prices fell as a result of global warming, so that a million people wouldn’t starve? Would that be worth 500,000 others who’d die from flooding?

If the earth is warming, it will doubtless have some good consequences and some bad ones. We can’t know with any precision or certainty in which direction the balance will tilt, nor can we know whether it’s worth trying to do anything about it.

Which brings us to our second major uncertainty: We can’t know whether our efforts would pay off or do more harm than good.

How much would they cost? Who would bear the expense? Why should peasants in the Himalayas have to pay for protecting millionaires’ beachfront mansions in Miami? Who decides?

A visionary program of this scale and ambition would have to be put in place and carried forward by elites from around the world. Naturally, they are almost all in favor… and are all slathering at the opportunities.

Who will get consulting contracts? Who will own the windmills and solar power plants? Who will benefit from tax credits and government contracts? And who will tell the rest of us what to do in a peremptory and condescending tone?

And like the French, who will take to the streets and set cars on fire?





By Joe Withrow, Head of Research, Bonner & Partners

Today, we’re checking back in on the 10-year to 2-year Treasury yield curve, which has been speeding towards inversion this year.

The Treasury yield curve maps the “spread,” or difference, between the 10-year and 2-year Treasury yields. This tells us how much more 10-year Treasury notes yield compared to 2-year Treasuries.

Simply put, a higher reading on this chart means that the difference between the two yields – the “spread” – is increasing. In other words, 10-year Treasury notes are paying relatively more compared to 2-year Treasuries.

A lower reading means that the yields on the 10-year and 2-year bonds are starting to converge… So 10-year Treasuries are paying relatively less compared to 2-year Treasuries.

And when the reading goes negative (below the red line in the chart), that means 2-year Treasuries yield more than 10-year Treasuries – known as an “inverted” yield curve. And remember, an inverted yield curve has preceded both previous recessions.


As you can see, the 10-year to 2-year Treasury yield spread just fell to 12 basis points, or 0.12%. That’s down from 31 basis points at the start of November – a 61% fall in a month’s time.

And with this month’s move, the 10-year to 2-year Treasury yield curve is back to where it was in December 2005. That tells us trouble is brewing, but it doesn’t mean a crash is imminent.

When the yield curve hit these levels in December 2005, it took another two months for it to invert. And then, the stock market peaked a full 20 months later.

And if you go back to the 2001 recession, it took a full nine months for the stock market to peak after the yield curve inverted.

So history suggests that we still have some time before the next recession hits – setting off the next bear market.

But with the 10-year to 2-year Treasury yield curve primed to invert early in 2019, we know that the bear is heading this way…

– Joe Withrow


Titans of Junk
As Bill has often warned, the level of non-investment-grade corporate bonds (or “junk bonds”) is reaching historic proportions. This pile of debt threatens to topple the U.S. bull market in stocks. And the foundations may be giving way…

Yes… Your Phone Really Is Listening to You
How do Facebook and Google always seem to know the perfect ad for you before you ever search for that product? It’s simple. They’re listening. They’re always listening…

And also read…

Sign the Digital Bill of Rights
Do you believe that privacy online should be a fundamental right? Do you believe that your personal data should belong to you? If so, then declare your digital rights today.


Below, a mixed mailbag: the difficulty of measuring global warming… who President Trump should hire… and the theft of the working man’s time

Hey, Bill, I enjoy your post with humor and light sarcasm. The problem that I have with over-bloated politics is it violates the vision of the Founders – too much government and bureaucracy. Some of our earlier presidents warned us about government run amuck: Ike, Ronald Reagan, and Trump… all “outsiders.”

As a retired engineer, physicist, astronomer, and petroleum geologist, I have a special outlook for the current UN treaty. The climate is way too complex to forecast with dozens and dozens of interlinked variables. The Earth/Sun complexity, the Milankovitch variables, ocean currents, seasonal variants… and on and on and on. Our submarine duty with conventional subs mandated our carbon dioxide levels to remain below 2,000 parts per million before our health was affected. Water vapor is a much greater “greenhouse gas” than any other. So I am an educated, overtaxed skeptic and one of Hillary’s deplorables. God bless the U.S. of A.

– George R.

Politicians often know little or nothing about science, mathematics, economics, etc., beyond what they were taught in school – if they even recall that. Mr. Trump, at least, knows a bit about business. He has some good ideas, hires the best advisors, lawyers, and accountants one can afford, and prays. With all the resources of government behind him in his present office, he should afford the absolute best. But if they don’t hold essentially to his opinions and biases, they are fired. Running his businesses that way meant that while he was often successful, several of his interests went into bankruptcy. Running government that way means…

– Chuck B.

You write a lot about the fact that wages for workers have actually gone down over time in terms of real money, and you often use the example of how long it takes to buy a car today versus 20 years ago, adjusting for prices. It would be very interesting to get your take on why wages today are dropping even in places like Silicon Valley, while top executives’ earnings are going through the roof.

This is a familiar pattern in many businesses, where the attitude of the owners is: “They’re lucky to have a job.” Business comes down to being about the risk-takers or the gifted, while most show little concern for bringing the working man or woman up. Is this just the way of the jungle? Or is it a talking point for wage critics (like we have heard from you, as you lash out at the eventual economic collapse caused by these imbalances, fake money, etc.)? Thank you kindly.

– Michael C.


A once-underground market is now becoming legal in the U.S.

It’s not legal pot… It’s sports betting. According to the Supreme Court, American states can now offer sports-betting services. A handful of companies are rushing to set up shop, and if you want to know where the money is headed, go right here