CORK, IRELAND – The U.S. president gave his assessment of the situation last night.

No mention was made of the fact that the country is going broke…

…or that rising interest rates threaten the fake-money system…

…or that tax cuts, along with additional military, infrastructure, and entitlement spending, will surely bring on a financial calamity…

…or that his protectionist trade policies will raise consumer prices, drive up interest rates even further, and depress output.

 

 

Trade War

Spoiled for choice, today, let us look more closely at trade restrictions.

“The president’s action makes clear again that the Trump administration will always defend American workers, farmers, ranchers, and businesses,” said U.S. Trade Representative Robert Lighthizer last week.

Trade wars are fought every single day,” added Secretary of Commerce Wilbur Ross in Davos.

The action to which Mr. Lighthizer referred was the president’s bold attack – hitting foreign-made washing machines, refrigerators, and solar panels with tariffs and import duties.

Left to their own devices, sellers and buyers are never at war. Instead, they always cooperate on win-win deals.

Both expect to come out ahead… or they wouldn’t do the deals. And since they generally do come out ahead, the economy comes out ahead, too.

The baker bakes better bread than the plumber. The plumber’s connections leak less often. Trading with each other, they both end up with more of what they want than they would have otherwise had.

Restraining trade with tariffs and regulations, on the other hand, produces winners and losers… and makes society poorer.

 

 

Winners and Losers

As to the winners from the latest trade barriers, there was one obvious one: U.S. home appliance company Whirlpool…

…whose lobbyists had urged the president to act…

…and whose stock rose 3% immediately following Mr. Lighthizer’s announcement.

There are also the solar panel manufacturers, Sunrun and First Solar… and their lobbyists… who benefit from the additional burden on their competitors.

Less clear was what or whom the Trump administration was defending farmers, businesses, et al., against.

Who were the losers?

That is the dot we hope to connect today.

 

 

Unfair Competition?

Whirlpool Corporation lists 28,000 U.S.-based workers.

A few thousand of them make washing machines, fridges, and other home appliances.

But hundreds of millions of Americans use washing machines and fridges. So while Whirlpool shareholders, workers, and company honchos win, consumers lose.

Consumers buy their home appliances on the open market, seeking the best quality at the lowest price. Now, they will pay more… as the feds impose import duties as high as 50%.

But wait, doesn’t Whirlpool face “unfair competition”?

Free competition reveals the best deal… and directs sales and profits (if there are any) to the most efficient producer.

The one who gives the most washing machine per dollar gets the most business. That is the only real measure of “fair” trade.

Unfree competition, on the other hand, directs sales and profits to the political favorite.

But here we add a “trigger warning”: Here comes the BS!

“The foreigners manipulate their currencies. There’s an overcapacity in the washing machine sector. Foreign firms pay lower taxes. Foreigners don’t buy our washing machines. Foreigners don’t pay workers enough. Foreigners don’t have the same environmental protections, zoning restrictions, or LGBT sensitivities. Foreigners allow children to work… and don’t give you a gluten-free meal selection.”

“Unfair competition,” allege the trade warriors.

Trade Bullies

But countries do not buy washing machines; individual consumers buy washing machines.

They use their judgement, prejudices, and delusions to choose the one that gives them the best deal. As The Black Swan author Nassim Taleb says, they have “skin in the game.”

It’s their time… their money… and their clothes that are at stake. If alleged “currency manipulation” – whatever that is – matters to them, they are free to take it into consideration.

The trade bullies have no skin in the game. They don’t care if you have less choice… pay more… and get an inferior deal.

They can say whatever BS they want… and pimp themselves up by claiming to represent the “workers” and “businesses” while pretending that only they know what deal is “fair.”

But what they are really doing is what governments always do: exploiting the many for the benefit of the few.

A letter addressed to the Diary from a dear reader in Australia tells us that the price of hooking up solar power Down Under is only half of what it is in the U.S.

The writer attributed this difference to heavier regulation in the U.S., sharply reducing the benefit of solar power.

And now, with new costs imposed on foreign-made solar panels, the entire industry – which was expected to be the largest single source of new employment in the U.S. in the next 10 years – is under a cloud.

But shares in U.S. solar panel maker SunPower are up nearly 10% since last Wednesday.

The many pay. The few profit.

Regards,

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Bill

MARKET INSIGHT: PROOF OF A BUBBLE?

By Chris Lowe, Editor at Large, Bonner & Partners

Is this the definition of a stock market bubble?

Today’s chart looks at the “real” – or after-inflation – rise in the S&P 500 going back to its pre-crash 2007 peak.

And it compares that with the average real increase in profits over the same period for the 500 U.S. companies that make up the index.

Chart

As you can see, since its 2007 peak, the S&P 500 is up 39% in real terms.

Meanwhile, real profits are up by just 6%.

The rest of the increase in stock prices is down to what Wall Street types call “multiple expansion.”

That is, investors have been willing to pay more for each dollar of profits.

– Chris Lowe

FEATURED READS

Is the Party Finally Over?
Yesterday, stocks had their worst day in months. With bond yields rising and violent price action in stocks, some are wondering if the bull market is finally winding down.

The Marijuana Boom Is Just Getting Started
As analyst Nick Giambruno showed recently, legal marijuana on a national level is inevitable. As acceptance of legal weed grows, more and more investors are flocking to pot investments.

Global Stocks Are in Avalanche Territory
Worldwide, stocks hover near all-time highs. Many investors are celebrating. But Bill Bonner Letter coauthor Dan Denning is sounding the alarm. He says today’s stock market is an avalanche waiting to happen.

MAILBAG

In the mailbag, readers consider if they would buy a plot of poisoned land

Well, it depends what the nature of the poisoning is and how possible it is to clear it up.

Poisons include: 1) Radioactive contamination; 2) Heavy metal poisoning; 3) Poisoning with hazardous chemicals and biologicals (Gruinard Island is called Anthrax Isle for a reason).

I certainly would not risk it without knowing the nature of the poisoning, because I would not bid unless I had a reasonable handle on the cost of clearing it up. Or more importantly, that it was not possible to clean it up for decades.

I would need to know legal obligations upon any purchaser to clean everything up. No need to get sued by the government for breach of contract or landing yourself with a $1 million bill for cleaning the place up.

I would be enquiring as to who had carried out the site survey and how I could access their report. And I would make it clear to the seller that my maximum bid without seeing the report would be $50,000 and my first bid would be $1,000 or less. But I would also have a hunch how it might be possible, under certain circumstances, to detoxify very profitably and thus make a good profit on any investment made.

– Rhys J.

Meanwhile, more feedback on the map of America’s depressed counties

Your depressed counties analysis is the most lucid presentation of the economic situation that I’ve seen. I’m noting that even mainstream Time magazine is starting to come around to this view of GDP being meaningless. Keep up the great work!

– Randy O.

As for the map, the question isn’t where, it’s why? I say technology is the main culprit, and Wall Street’s insistence on quarterly earnings increases driving companies to take production overseas for cheap labor. But now if they come home, it’s robotics.

– Patrick V.

Like all of the economic numbers, I suspect that the savings rate numbers are also a sham. But in this case, I suspect it to be in a positive light. I cannot speak for the nation; I can only speak for myself, and can venture guesses as to my family and friends. If you look at my “official” savings rate, you would assume that I am one of those who could not handle a $1,000 emergency. I keep that or less in my savings account.

This was not always the case. I used to have a CD ladder, a money market account, savings bonds, a vacation club savings account, and a bond mutual fund in the ’80s and ’90s, but since I basically have to pay to keep my money in these things, I no longer have ANY of them. Instead, I have a few investments, and gold, silver, and cash in a fireproof safe.

If one gives it even a cursory thought, one must come to the conclusion that, given the prospect of a bank default versus the odds of my home safe being stolen, my savings are better off in my possession – where they do not land on any official “savings” statistics.

– Joe J.

IN CASE YOU MISSED IT…

In the 16th century, Spanish conquistadors established two cities in South America. These two cities were once described as “the richest in gold” in all the Americas.

The cities have been lost for centuries. But now, one man believes he’s uncovered them… It may seem like an adventure story, but read all the details for yourself right here.

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