Oh what a tangled web we weave
When first we practice to deceive.
– Walter Scott, Marmion
POITOU, FRANCE – Stocks lost $1.4 trillion in value over the last four trading days. The press is reporting it as a “monster bloodbath.”
Bloodbath? Today, the Dow is still over 25,000. Investors still expect more rate cuts. And most still think the master dealmaker, Donald J. Trump, will strike a deal with China in time to boost the stock market for the 2020 election.
But the whole ball of trade wars, Federal Reserve rate cuts, currency manipulation, inverted yield curves, and negative yields is so tangled up in deception and claptrap it is almost impossible to unravel.
Less than a week ago, the Fed cut interest rates in an “insurance” move. But insurance against what? A recession? A bear market?
Can a weatherman insure against winter?
If investors had thought about it more, they might have realized that there is no way the Fed can insure against a correction. The Fed can only delay it and make it worse.
But there are few thinking, skeptical, analytical investors left. Instead, the buying is done by corporations who buy back their own shares… or momo computer programs trading for exchange-traded funds (ETFs) and other semiautomatic investments.
These passive funds now control nearly half of all stocks. And almost all net buying has come from corporate buybacks.
For a moment, though, in anticipation of a rate cut, the momentum was on the upside. Investors thought they saw Dow 30,000 coming up fast.
Then, Donald J. Trump’s emissaries came back from China with hands as empty as their heads.
After they reported that China was not ready to play the president’s game, Trump turned up his trade war from 1/2 retard to 3/4 retard. An additional $300 billion worth of Chinese goods will face levies if a deal isn’t made, POTUS says.
China is a key player in the whole worldwide bamboozle, wringing fake money out of debt-drenched consumers in Europe and America and spinning it into stocks, bonds… cement, steel… and even more factories and empty towns.
Bringing China to its knees may be good for tweet-o-rama politics. It might even be doing the Chinese a favor… But it would be very bad for a world economy with $250 trillion of debt. It’s Inflate or Die. And the China trade is a key part of the inflation program.
Both the U.S. and Chinese economies are built on debt. The U.S. creates fake money and lends it out; Americans spend it on Chinese-made goods; the Chinese economy, thus stimulated, builds more factories and produces more goods, further undermining U.S. manufacturing industries.
When China goes down, most likely, the U.S. and Europe will too. Which will not be good for Mr. Trump’s hopes of reelection. That’s why we predicted he would never go “Full Retard” in his trade war. But we might be wrong. Mr. Trump may not be as canny as we thought; the whole thing seems to have gotten away from him.
The president insisted that “trade wars are easy to win,” that tariffs are “paid by the Chinese,” and that forcing China to the bargaining table will reduce the U.S. trade deficit and bring back manufacturing jobs to the U.S.
None of that is true.
Nor is the most recent charge – that the Chinese are manipulating the yuan. This is exactly what they aren’t doing. They had to intervene to keep it at 7 to the dollar. It fell only when they stopped supporting (manipulating) it.
This “manipulation” charge is a good illustration for the whole fandango. Everything is manipulated, up is down, tomorrow is yesterday. Nothing is true. Nothing is straight. Nothing is what it pretends to be.
How do you untangle this mess? What’s real? What’s going on?
We turn back to the Greed/Fear index – the Dow-to-Gold ratio – like Alexander reaching for his sword. Unable to disentangle the Gordian knot, he simply sliced it in two.
The G/F ratio cuts through the tangle of fake money, fraudulent arguments, and phony price signals. It measures the most basic long-term shift in the financial market. People are either fearful… or greedy.
Optimistic or pessimistic. They think they are in Heaven… or they’re worried about Hell.
They buy stocks to participate in the glorious future. They buy gold when they are afraid of what tomorrow might bring.
The gates of Hell opened wide way back in 1980, when you could buy all 30 Dow industrials for scarcely more than one ounce of gold.
Peak Greed occurred in 1999, when it took more than 40 ounces of gold to buy the 30 Dow stocks.
And by 2011, the G/F ratio had been going down for 11 years, but had still not reached previous historic lows. It would probably have gone lower, but weird things began to happen.
Central banks all over the planet had decided to do “whatever it takes” to stop the correction and keep the party going. All they had to work with, however, was fake money. So they flooded the world with it.
The federales can’t stop a correction. But they can delay, distort, and disguise it.
The Greed/Fear index bottomed at 7 and headed up… and rose all the way to 22 in 2018. But this was not an honest, true indicator of the Greed/Fear trend. The feds were actively falsifying the numbers… manipulating the markets by inflating stock prices.
By October 2018, the Fed had spent $3.6 trillion on quantitative easing (QE). The federal government had run $10 trillion in additional deficits. And Team Trump had even pushed through a tax cut.
For all the money, they had bought the weakest recovery in history.
Real earnings for most people were flat or falling… Manufacturing, the part of the economy that gives us more stuff, was weakening. And world debt – anti-capital – grew by $70 trillion, more than three times faster than output.
Then, in the autumn of 2018, gold rose. Stocks fell. And the Greed/Fear index headed back down. From over 22 in September 2018, it is 17.57 this morning.
If we’re right, real capital – gold – will become more valuable. Anti-capital – debt and wealth-destroying companies – will fall in value. And the Greed/Fear index will continue down until it finally completes its historic rendezvous with destiny.
Then, you will once again be able to buy the entire Dow for five ounces of gold… or less.