CACHI, ARGENTINA – Here at the Diary we have fun ridiculing the pretensions, absurdities, and hypocrisies of the ruling classes.
But there is a serious side to it, too.
Mockery makes us laugh. And laughing helps us wiggle free from the kudzu of fake news.
Reading the Diary mailbag (see below), it is obvious that many dear readers are confused by what seems like a contradiction.
On the one hand, we recognize that what goes on in public life can never be fully understood; it is infinitely complex and unknowable in its entirety.
Nor can we ever know what will happen as a result of a law, an idea, or a policy; there are millions of possibilities and only one forthcoming reality.
Nor can we ever know whether the results will be “good” or “bad.” Only God knows what is good or bad; we know only what we like.
On the other hand, it is our lonely and frustrating role in life to try to look through the leaves and dust to try to see what is really going on, realizing that we will only see “through a glass darkly,” at best.
And so, today, we lift our head up above the leaves… and we look at the last 17 years as though it were a vast historical tableau hanging in the Musée d’Orsay.
Big, Fat Flop
From almost every angle you look at it, the 21st century – so far at least – has been one big, fat flop.
Putting it in context, the century opened with high hopes.
In technology… broadband internet, mobile networks, and “cloud” computing seemed to open vast possibilities.
In the new century, almost everyone would have unlimited access to the information on which progress depends. No need to go to MIT to learn how to build a nuclear bomb; it’s on the internet!
The need for old-fashioned capital – savings, resources, energy – seemed greatly diminished, too.
Knowledge, traveling at the speed of light, would break through the old physical barriers. Poor nations didn’t need to go through the Industrial Revolution; they could go right to the Information Age.
In politics, the Clinton administration had reduced the rate of growth of the national debt… the Berlin Wall had fallen 10 years previously… and George W. Bush was elected on a promise of making government less interfering – especially overseas, where he called for a “more modest” foreign policy.
In the economy, too, there was cause for optimism.
Not only were the new information technologies reducing costs and promising faster progress, but also corporate governance was allegedly improving.
Alert boards and activist shareholders were pushing for more efficient uses of capital. Middlemen were being “disintermediated,” which shortened production-to-consumer supply lines and lowered prices.
And globalization allowed countries to do what each did best, further increasing the world’s output.
As for employment, the internet opened up new opportunities for work all over the world; you no longer had to be physically on Wall Street to earn Wall Street wages.
Yes, as the new century dawned, U.S. GDP was growing at a rate of about 3% a year…
Meanwhile, unemployment was near record lows… stocks were at record highs… the government’s finances were stabilizing… the threat of war was low… and new technology, abundant capital, and 20 centuries of compounded learning promised to make it the best ever.
But then… something went wrong. Or many things went wrong.
New technology reduced costs. But it didn’t seem to increase output.
Shoppers can save money by buying from Amazon.com; but the company virtually makes no profit outside of its cloud computing unit. (Its operating margins on its core e-commerce business are negligible.)
New technology makes it possible to send and receive all the data, information, and entertainment you want. This may or may not increase the quality of life.
It makes a few “platform” companies – companies such as Facebook and Google that connect users with information and advertising – very rich.
But it doesn’t create the kind of economic output that provides good jobs and makes ordinary people (outside of Silicon Valley) better off.
Just the opposite: More than anything else, the new technology may be a time waster. It is now estimated that America’s unemployed spend as much time on electronic pastimes as they would spend at full-time jobs, if they had them.
Alcohol, Drugs, and Suicide
Which brings us to the economy.
Despite the marvels of new technology, economic growth rates have fallen.
Throughout eight years of the most aggressive pump-priming in the history of central banking, the flow of new goods and services never got above a trickle.
Now, GDP growth – clocking in at an annual rate of just 0.7% in the first quarter – is at stall speed. The average American family earns scarcely more today than it did when the century began.
Home ownership has fallen back to levels last seen in the 1960s. And there are now fewer people – as a percentage of the working-age population – with full-time jobs than there were 40 years ago.
Particularly hard hit were middle-aged white men. Not only did they lose jobs at the highest rate since the Great Depression, but as a result of higher levels of alcohol, drugs, and suicide, their lives also shortened.
Meanwhile, the Fed – desperate to put some distance between it and zero so it will have some rates to cut in the next crisis – claims to be in a “tightening cycle.”
But the world economy now has $215 trillion of debt. This makes it extremely vulnerable to interest rate increases.
The Fed will never be able to get far in its “tightening cycle” before it turns around and offers more emergency funding.
Finally, politics has been a total disappointment.
Instead of a more modest foreign policy, President George W. Bush launched America on the longest, costliest, and losing-est war in its history.
Bush Jr., the son of a president and CIA director, was about as deep as you can get in the Deep State. So, it wasn’t surprising that he would start a war in which only Deep State cronies would come out ahead.
Then Barack Obama was elected. He also promised a change of direction. He was supposed to bring the troops home and end the mindless wars overseas.
But he was either captured by the Deep State almost immediately, or the fix was in from the get-go.
In either case, he broadened the battle overseas… and increased the level of surveillance and control at home.
He also added a medical care boondoggle that guarantees national bankruptcy. As baby boomers retire, support for “free” pills increases… costs rise… and (as Republicans just discovered) there is no way to stop it.
The latest of America’s 21st-century presidents, Donald J. Trump, pulled the same trick.
He campaigned on a platform of “making America great again.” Almost everyone took that to mean great as in how it was before O’care… before the Forever War on Terror… before the EPA, the NSA, the Department of Homeland Security, and the rest of the snoops and regulators were barking orders at us all day long.
Mr. Trump said so many preposterous and contradictory things that it was hard to know what he meant. But three months into his administration, it is clear that there will be no change of direction.
O’care goes on… so does the wacky War on Terror… so does all the meddling, interfering, and crony, win-lose gamesmanship.
In fact, it may have gotten worse; Mr. Trump seems to lack any sense of limits, prudence, or constitutional restraint.
So, here we are…
Seventeen years into the new century, and we have less peace, less freedom, and less prosperity than we had in the last one.
Market Insight: Are Stocks at “Crash Level” Valuations?
BY CHRIS LOWE, EDITOR AT LARGE, Bonner & partners
It’s a term you hear a lot right now.
For instance, one widely watched value metric is the price-to-earnings (P/E) ratio.
It tells you how much stock market investors are willing to pay for each dollar of company earnings.
And there’s no doubt it’s overstretched…
There have been 15 bull market tops for the S&P 500 going back to the end of World War II.
The average P/E ratio at these tops is 18.1. That compares with today’s P/E ratio of 24.8.
In other words, investors are willing to pay about 40% more for each dollar of earnings than at the average post-war market top.
But that’s just an average…
And as you can see from the table below, it masks a lot of nuance.
The average P/E ratio at previous market tops may be lower than it is today.
But the S&P 500 has peaked when its P/E ratio was in the single digits (in 1948 and 1980).
It has also peaked when its P/E ratio was higher than it is today (in 1998 and 2000).
What to make of all of this?
Today’s relatively high P/E ratio means you should tamp down expectations of big gains from here on in with U.S. stocks.
After all, you make money in stocks by buying low and selling high, not the other way around.
But if history is any guide, P/E ratios – and stock prices – could go even higher before we reach a top.
– Chris Lowe
The Silicon Valley Bubble Has Quietly Popped
On Monday, Bill warned that darling tech companies have reached crazy valuations. As once-promising tech IPOs continue to flop, the mainstream media is starting to take notice.
Monopolies Are Thriving in America… And They Suck
Most folks assume monopolies are a thing of the past. But they’re thriving in America… and they are wreaking havoc on customers.
How the U.S. Destroys Itself
Renowned speculator Doug Casey says the U.S. is headed for total collapse. It will begin with a collapse in the dollar… and then get much, much worse.
Today, readers weigh in on Bill’s support of a government shutdown.
I am with Bill. Shut the whole thing down. If Obama had not made it bad on the tourists to D.C. during the last shutdown, no one would have noticed.
– Jim M.
I suggest two services should be declared non-essential, and immediately unfunded – the Secret Service and the Capitol Police. Let’s see how long the critters refuse to pay our military members, our Social Security and Medicare recipients and other “non-essential” people when their own security guards are out of a job as well.
– Carl N.
You are fairly clear in your musings that you know from where community spending (taxes) should not be taken. Would you please tell us, then, from which Factor of Production (Land? Labor? Capital?) we should get the wealth we need to run our communities?
– Isador G.
You continue to hammer Hillary Clinton and she has been out of the picture for months. Sure, let’s shut down the government and close the airports and highways. That should show everyone in the country how Bill Bonner would run the government.
Your President was going to fix everything and it was going to (his words) “be easy.” We are going to have the largest deficit ever with his military spending and yet you continue to bash Obama and Clinton.
– Ronnie R.
Meanwhile, one reader has a suggestion for Bill after reading Tuesday’s Diary, “Head Toward Civilization, Then Take a Left.”
Given everything that is happening at your ranch in Argentina, perhaps you should learn to play “Ring of Fire” by Johnny Cash. Sounds like it may be a bit more appropriate. Good luck.
– Chris J.
In Case You Missed It…
Our colleagues at Casey Research published an interesting story…
In 1993, Bill’s longtime friend Doug Casey invested $80,000 in a company that was trading at a penny a share. It seemed crazy at the time. But Doug held on. His patience paid off when the stock jumped to $8 a share, an 86,900% gain.
Now, Doug’s made an even bolder move. Hear Doug explain the opportunity in his own words right here.