BALTIMORE – “Nobody knows anything,” they say in Hollywood.
They gather together millions of dollars… top celebrity actors… a director who has just won an Oscar… add a script with plenty of sex and violence… and look forward to a blockbuster.
Then they put it in front of a live audience… and the customers turn up their noses.
Tomorrow’s spectacle was meant to be a great epic from Establishment Productions.
It was to be the story of two noble families – the House of Clinton and the House of Bush – in a traditional staged conflict.
The House of Clinton would put forth its champion, Hillary. She – if elected – would be the first woman president of the United States… and the first wife of a president (not to mention the first candidate faced with impeachment before even being elected)… ever to rule over the Americans.
Hillary was the candidate of the Left; studio strategists were sure she would make the show a hit. She had the cronies’ money in her pocket already. And there were enough people on the take from government to get her enough votes.
“Women and families” were what she said she cared about. She said it so often you could almost believe her.
Her only weakness was that she might not seem “tough” enough for the empire’s lead role. So the studio set her up with four years of training as President Obama’s secretary of state… bombing, bullying, and shamelessly cheerleading the murder of thousands of the women and children she was supposed to love so dearly.
The House of Bush, meanwhile, had a long history of success in box-office politics. The founder of the dynasty, a Wall Street banker called Prescott, was elected as U.S. Senator.
His son George was a U.S. president. And grandson Dubya also played the role. So it seemed as though Dubya’s brother Jeb would be a shoo-in.
He would show the world that all members of the Bush family were not stupid. Plus, Jeb had proven, in the swamps of Florida, that he could woo the crackers and win an election.
It should have been a box-office bonanza in the Independence Day genre.
In that sci-fi action filmantasy, aliens attack the planet. At first, the Earthlings have trouble getting their act together. But then, the president himself puts on his fighter-pilot helmet and goes out to face the enemy and save humanity.
This year’s film, Election Showdown of 2016, was meant to have the same kind of end-of-life-as-we-know-it tension – resolving itself, of course, in a stirring triumph for the American Way.
Winner and loser would stand together, one congratulating the other, in front of a waving flag the size of Texas. The message would be clear and uplifting. Though they may have their differences, in the end, Republicans and Democrats are committed to the same goal: keeping the Deep State insiders in power.
But it was not to be. The sequel of Independence Day – Resurgence –fizzled. So did the “Make America Great Again” election. We saw a foreshadowing of trouble early in the primaries. There was something wrong: Neither of the two stars appealed to the fans.
The cronies played their roles – duly ponying up the millions to make the flick. The studio insiders, directors, and producers, performed as you would expect, perverting democracy with the usual tricks. The lead actors, too, appeared on set and delivered their lines just like they were supposed to. But viewers wouldn’t play along; they refused to clap!
The great drama that the special interests had scripted so carefully… and funded so generously (Hillary had already put in place one of the most successful influence-peddling machines in history)… was going to be a flop.
The seats were left empty. The popcorn was unsold. The mob in the seats was restless, practically threatening to burn the theater down. The script had to be thrown out. A new team of writers, directors, and producers was brought in.
Numbskulls and Has-Beens
What was wrong?
The two performers had missed the mark.
One pretended to care for the weak, the underprivileged, the single mothers, and the multiple offenders. The other pretended to care about the economy, money, a sensible foreign policy, and traditional Republican values.
But the spectators had already seen this movie. They knew it was a fraud. They knew, too, that both of the stars were swinish mountebanks who had been playing them for fools for years…
The fans demanded something different; they wanted authentic characters, even if they were numbskulls or has-beens.
And so it was that two unlikely performers – one playing the part of an aging, cranky socialist… the other a flamboyant, rude P.T. Barnum – stole the show!
And what a show we ended up with! We can’t remember when an election generated so much interest, entertainment, claptrap, vituperation, calumny, and hogwash. The film, intended as a feel-good fantasy, has become an entirely different thing. Comic, dramatic, at times surreal… It is in a class of its own, somewhere between The Walking Dead and House of Cards.
Hillary barely held on to her role and, and is now the champion for both Houses… not to mention the entire Deep State establishment. And poor Jeb had to go back to the stable, replaced with the aforementioned carnival barker, a man much better suited to the new farce-like genre.
No matter who wins, it’s one for the history books.
Further Reading: As Bill always says, it doesn’t matter who wins tomorrow’s election. The real power – as it always has been – will be the Deep State.
Get Ready for the Greatest Financial Mania
the World Has Ever Seen Part 2
Editor’s Note: In place of our regular “Market Insight,” we want to continue an important theme you’ll see in the Diary this week. Today we’re sharing Part 2 of a special essay from longtime friend and founder of Stansberry Research Porter Stansberry. In case you missed Part 1, you can read it here.
The full essay was originally published on September 9, 2016.
Today, around the world, something around $15 trillion in fixed income is trading at a price that guarantees investors will lose money if they buy the bond and hold it until maturity.
I want to make sure you understand what’s happening because the bond market and bonds are a mystery to a lot of individual investors.
A bond can trade at a negative yield to maturity (guaranteeing a future loss) while still paying a current coupon. How can that happen? It happens when investors bid the current price of a bond so far above par that the remaining coupons to be paid won’t cover the loss when the bond matures.
So, for example, you might see a bond trading at $130 when it only has $29 worth of interest left to be paid before it matures at $100. An investor buying a bond like this has to believe he’ll be able to sell it at an even higher price, to an even bigger fool… or else he’s guaranteed to lose money.
Of course, all investors believe that they will be nimble enough to sell before that happens. And all investors believe that governments will continue to buy these bonds… or maybe even stocks… and do whatever it takes to keep the bubble growing.
This situation is the definition of an investment mania. Everyone knows that, someday, these bonds will reach maturity. And, at some point before they do, just as surely as the sun rises, these bonds are going to cause huge losses. And yet, despite these obvious facts… investors have begun to price even “junk” bonds – that is, non-investment-grade debt – at prices that guarantee investors will take losses.
Just like Templeton back in 2000, I know for certain that this mania is running out of steam. How can I know for sure?
There are three big “tells”:
First, total U.S. corporate debt is now 45% of GDP. That’s where the two previous credit cycles peaked (’02 and ’08). It’s simply not possible that the amount of credit outstanding to corporations can grow much from here because, even at very low rates of interest, there are not enough willing borrowers. Think about yourself. Does it really matter if someone offers you a 2% rate on a credit card? Are you going to go into debt for any reason? Nope.
Second, and far more important when it comes to timing, the number of banks in the U.S. that are tightening lending standards is rising and has just passed a critical threshold (10%). Banks tend to tighten lending standards at the same time, at the end of a credit cycle and beginning of a default cycle.
Third, we know for sure that a new default cycle has begun because not only are banks tightening, but credit downgrades (by the ratings agencies) have bottomed (in 2014) and continue to grow substantially. Likewise, outright default rates have bottomed and continue to grow rapidly. Morgan Stanley’s top high-yield bond analyst (Meghan Robson) believes the default rate in high-yield bonds will hit 14% by the end of 2017 (it was basically zero in 2014). She also says the total default rate will peak at 25% annually within five years.
The “fuel” that’s behind this mania and the reason it continues to grow (for now) is the fact that most professional investors, aka “Wall Street,” believe that without higher interest rates, there simply won’t be a trigger for a panic. But these guys are forgetting something that’s very, very important…
There are two ways to trigger a panic in the bond markets, not just one.
Yes, the first trigger is higher interest rates. (If new bonds are being issued that pay higher rates of interest, it makes the older bonds – which pay lower coupons – worth less in comparison.)
But the second trigger for panic, the one they’re forgetting, is simply rising defaults. Cheaper credit, by itself, won’t fix a failing business. Cheaper credit, by itself, can’t fix falling profit margins where there’s tremendous overcapacity, as there is in energy, manufacturing, retail, real estate, etc. In these sectors, defaults can and surely will cause massive losses for bond investors.
This panic will begin in the next 12 months. And because the numbers are so large and global, the coming bear market in junk bonds will influence fixed-income markets and equity markets around the world.
Since 2012, junk-bond issuance has totaled $1.4 trillion in the U.S. alone. That’s as much capital in four years as was issued in the decade between 2002 and 2012.
And for the first time ever, global junk-bond issuance has equaled America’s. It is this cheap and seemingly endless supply of capital that has lowered profit margins, which is why corporate earnings continue to decrease (four quarters in a row…) and industrial production is falling. It explains the glut in energy and materials, too.
I’ve been warning about this coming massive bear market in corporate debt. I’ve called it “the greatest legal transfer of wealth in history.”
This is a period when wise investors (like Templeton) will take massive amounts of wealth from fools. To help position our subscribers on the right side of this trend, I’ve invested a lot of time and money in building a huge analytical engine to study every corporate bond that trades in the U.S. We examine around 40,000 individual bonds every month. We build our own credit ratings for every issuer and we compare our estimate of creditworthiness to the ratings agencies. We look at discrepancies between our view, the ratings agencies’ views, and the market’s pricing. In short, we’re using computers and databases to find the “needle in the haystack.”
This analysis has, so far, led to 11 recommendations in our Stansberry’s Credit Opportunities service. Three of those recommendations never traded below our buy-up-to prices. Even so, the eight recommendations that have traded inside our buy-up-to windows (so far) have led to annualized returns of nearly 50% – with zero losses. The yield of this recommended portfolio is 7.5%.
Huge amounts of capital have flooded into the junk bond markets this year, making it virtually impossible to buy bonds at a proper discount. But we know… our real opportunity is coming.
But what about regular investors? What about folks without the capital or the sophistication or the patience to deal in the bond market, where getting a position filled can take months and dozens of phone calls? And… why only trade this mania from the long side? Why bother with finding the needles in the haystack? Why not simply do what Templeton did and sell short the bonds you know will fail?
That’s a great question. And I’ve spent a year thinking about the right and safe way to make gains that are big enough to cover the risks involved. The answer isn’t trying to short individual bonds. Or even bond exchange-traded funds. The right way is a wholly different kind of strategy.
It’s something you’ve never seen me recommend before.
It’s a strategy that, like Templeton’s, will take a year or more to reach a substantial profit. It’s a strategy, like Templeton’s, that is extremely contrarian. It’s a strategy that I plan to invest several million dollars into personally… and that I believe will make me between 10 and 100 times my investment. It’s a strategy that will take discipline and patience – so most investors won’t follow it. And that’s the primary reason I believe it will work. I’ll tell you all about it next week…
Editor’s Note: Porter and his team are putting together a one-time presentation on Stansberry’s Big Trade to share with you on Wednesday, November 16, at 8 p.m., ET.
You can instantly reserve your seat, and make sure you receive any and all important announcements leading up to the event, by clicking here.
Attendance is FREE, no strings attached. And so is all the valuable and actionable information we’re going to share with you during the days ahead!
I urge you to click here now, get all the facts, and make an informed decision about this historic crisis (and opportunity) while you can.
There Will Be One Huge Winner in the Coming Currency Crisis
Doug Casey says we are exiting the eye of the giant financial hurricane that’s going to be much more severe, different, and longer lasting than what we saw in 2008 and 2009…
The Postwar Boom Isn’t Coming Back Anytime Soon
Donald Trump has built his election campaign around nostalgia for a once-great America. But the prosperous postwar years the baby boomers remember so fondly aren’t coming back… no matter who’s elected.
Hackers Steal Money from 20,000 Bank Account Holders
Tesco Bank in Britain has halted online payments for current account customers after money was taken from 20,000 accounts. The heist was carried out by unknown computer hackers.
Judging by the feedback we’ve been getting, Bill continues to lose subscribers over his coverage of the presidential election.
If Hillary wins, I will cancel your newsletter!
– Pete L.
I just wanted to subscribe to your newsletter. But what you are writing about Trump doesn’t testify to my spirit… I hesitate to come to you closer.
Your prediction about him could very well be wrong. When you see what’s going on only some days before election! You know what I mean. Unbelievable. In spite of all the mud about the Clinton Foundation, everybody seems to know who will win the election.
Why? Are they all predictors? No, it seems everything is already prepared. Rigged?!
– Gabriel M.
You keep on talking about Crooked Hillary. You must support her. If you do, you do not know what you are talking about. And it shows you have no credibility in anything.
– Richard M.
What is absolutely depressing is Bill Bonner’s lack of reflection on at least one substantive policy difference between the two candidates: taxes.
I don’t think Bill, as a former Taxpayers Union “president,” has ever made any substantive statement on taxes in a public forum that compares with his equally entertaining, quipping nemesis, Donald Trump.