Guest Post by Bill Bonner
POITOU, FRANCE – Is our Crash Alert flag still flying? We hope so. It’s been up the pole for so long, waiting patiently for the stock market to fall, we’d hate to miss it when it finally happens.
Stocks sold off yesterday, after the 30-year Treasury bond hit a record high and the yield curve well and truly inverted. The Dow ended the day 800 points lower, with the Dow-to-Gold ratio sinking below 17.
The index measures the fundamental inclination of the economy, by comparing gold to stock prices.
When the economy is healthy and growing, people buy stocks and the index generally goes up. When it is fearful and correcting its mistakes, they buy gold and the index goes down.
It now takes 16.8 ounces of gold to buy the Dow stocks… down from 40 in 1999 and 22 in 2018. Our guess is that it will continue going down until you can buy the Dow stocks for less than 5 ounces of gold.
A further guess is that this long decline in the Dow-to-Gold ratio (aka the Greed/Fear gauge) over the last 20 years marks not only the decline of America’s leading companies, but of America itself…
Long Fuse
History books will record that by 1900 the U.S. was the world’s largest economy. By 1950 it led the world by almost every measure. By 1989 it no longer had any serious rivals. And by 1999 it reached its peak.
Since then, it has been losing market share, losing wealth and power, and losing the small-government, open-market, free-enterprise spirit, customs, and institutional advantages that made it such a success in the first place.
But we’ll come back to that tomorrow…
Today, let’s look at the yield curve and what it means.
Ten times since 1950, an inverted yield curve (with yields on long-term bonds lower than those of shorter-terms) has signaled a recession.
But don’t worry, say the stock pushers on TV. A recession has a long fuse.
Between the time the fuse is lit by an inverted yield curve… and the time the stock market blows up… investors usually have 18 months to take their profits. And it’s not unusual for stocks to hit a new high during that period. So it’s still Party On!
But this is now the longest economic expansion in U.S. history. Having delayed and denied a correction for so long, and having caused so many absurdities and abnormalities, a real bust may not be willing to wait.
And in any case, when a theatre burns down, it’s better to leave the show early rather than later.
Simpleton’s Faith
An inverted yield curve is an odd thing. Time is inherently a destroyer. It degrades everything… Milk goes sour, buildings crumble, machines rust, mountains dissolve, and people grow old and die.
When the interest rate on long-term loans is lower than the interest rate on short-term money, it implies that fewer things can go wrong over 30 years than over the next 30 days.
But there it is… The 30-year U.S. bond now trades at barely more than 2% – less than consumer price inflation. In other words, a buyer, if he holds to maturity, is guaranteed to lose money.
Worldwide, another $16 trillion worth of bonds now trade at negative yields in nominal terms.
That is not just a market oddity; it is an outrage.
With a simpleton’s faith in their own hocus-pocus, central banks all over the planet have mispriced the world’s capital, pushing rates into negative territory. Of the world’s major government bonds, only the U.S. still offers positive (in nominal terms) yields.
Large, institutional players – pension funds, trusts, insurance pools – need to get some yield on their money. So they go to the U.S. bond market… thereby raising U.S. bond prices and lowering yields.
This causes the yield curve to “invert”… which causes stock investors to sell in anticipation of a recession.
Blame the Fed
Meanwhile, Donald J. Trump has used the stock market as a proxy for his own performance.
We predict that he will continue to do so… as long as stock prices are going up. When they go down, he will blame the Federal Reserve. Bloomberg:
President Donald Trump called Federal Reserve Chairman Jerome Powell “clueless” and blamed his policies for signs in the bond markets that a recession is looming.
The president tried to deflect criticism that his trade war with China is harming the economic outlook, as stock markets tumble and bond yields show signs of an impending global slowdown.
He is surely right that the Fed is “clueless.” But they are all clueless… Democrats and Republicans.
They – including the “low-interest-rate guy” in the White House – have created a world that depends on more and more inflation… lower rates, more credit, bigger deficits, more fake money, and more debt.
The arguments between them are only on matters of technique: Did the Fed cut rates soon enough? Did the Chinese let the yuan fall too much? Should Congress provide more money for the military… forgive student debt… or give everyone a guaranteed income?
Awaiting the Barbarians
But the real problem is not a lack of inflation. It’s a lack of integrity.
The feds can add as much fake money as they want. Zimbabwe tried it. Venezuela is trying it. At one point or another, almost all countries give it a go.
But as we’ve seen, the more they inflate the money supply, the more it distorts prices and disfigures the economy.
GDP growth rates go down. “Inequality” goes up. Debt increases. Savings go down. Capital disappears.
This is not a sustainable model for growth and prosperity. It leads only to a bubble… and a bust… and worse – including a breakdown of civilized behavior.
What the economy really needs is neither more fake money nor less fake money, neither higher interest rates nor lower interest rates…
What it needs is honest interest rates – discovered by savers who offer their real savings… and borrowers who bid for it with real money.
In the meantime, we watch the markets… and await the barbarians. We get the news like the homies in Rome in 454. The Vandals are on their way, say the headlines.
But don’t worry, our armies will meet them… and give them a good thrashing.
Stay tuned…
It is my sincere desire to provide readers of this site with the best unbiased information available, and a forum where it can be discussed openly, as our Founders intended. But it is not easy nor inexpensive to do so, especially when those who wish to prevent us from making the truth known, attack us without mercy on all fronts on a daily basis. So each time you visit the site, I would ask that you consider the value that you receive and have received from The Burning Platform and the community of which you are a vital part. I can't do it all alone, and I need your help and support to keep it alive. Please consider contributing an amount commensurate to the value that you receive from this site and community, or even by becoming a sustaining supporter through periodic contributions. [Burning Platform LLC - PO Box 1520 Kulpsville, PA 19443] or Paypal
-----------------------------------------------------
To donate via Stripe, click here.
-----------------------------------------------------
Use promo code ILMF2, and save up to 66% on all MyPillow purchases. (The Burning Platform benefits when you use this promo code.)
Of course recession is coming. Recession is always coming. It’s just a question of when. I enjoyed the mainstream media squawking yesterday “inverted yield curve, inverted yield curve1”. It reminded me of Obama lecturing us about the “profit-to-earnings” ratio (his own personal metric, it would seem). I’ve also been getting a chuckle out of NPR reporters criss-crossing Iowa looking for farmers who’ve turned from pro-Trump to anti-Trump over the trade war. Because no one cares more about the bitter clingers in flyover country than NPR.
Buying and holding physical gold sounds like a great idea – as long as you have a foolproof way to assure yourself that you’re not buying gold-plated tungsten. And you have a theft-proof place to keep it, and can trust that the family members you’ve told about it won’t tell someone who would tell anyone else who would kick down your door at 3 AM or steal it while you’re out of town.
Iska.
Gold plated tungsten is worth more than fiat, which is gold plated tungsten. A theft and fool proof place to keep it.? You mean like a bank? And you’re trusting the Govt. crime family members not to kick your door down in broad daylight and put you in a jail out of town.
The crisis is not coming, it’s here.
Surely this is the warning to be believed.
But don’t worry, our pink-panty armies will meet them… and give them a good tongue lashing.
A few weeks ago I said we could be blind sided by a stealth devaluation and reset of the gold price by allowing both to find their real market value. It looks like it’s happening by default instead of by design. Perhaps I gave them too much credit for being smart. Instead of buying PM’s entirely you might want to speculate with 10% and buy stocks in some good, well run wheelbarrow companies.
Stack junk silver…..
The only place I like to see FDR’s face are on pre-64 dimes…14 make an ounce of silver and will one day allow many necessary daily transactions and barter deals.
The dems have it coordinated. They have been pushing a kill whitey, all whites are racist for 4 years now. When the recession hits inequality peaks just as people have been prodded and empowered to harm whitey. There has been increasing hate and harm upon whitey with no repercussions and no jail time. Cops getting urine and feces and water guns sprayed on them and they are too neutered by their own leaders in govt to even arrest people. This just may turn into an actual civil war. I never believed it but the left just may get the fight they have been asking for and its scary….gonna get a lot worse before it gets better.
Just came back from the gun store to buy another 10/22 Stainless Steel Take Down .22 with the double stacked 25 round mags…five of his dealers are all on back order. I’m noe in line.
They can’t manufacturer them fast enough.
Shit storm Civil War is coming and more and more people are pulling their heads out of the sand.
What’s the best handgun for firepower for a woman? I think I’m going to purchase a couple handguns this weekend. 1 for me and 1 for my wife.
Depends on how comfortable she is with guns. Mine has A 9mm. Shoots it well and really enjoys it. But she likes the .45 much better although it is too big for effective CC. She says it doesn’t kick as hard due to the overall size and weight difference.
Donkey,
My wife is not a gun person, but I make her practice with her snub nose .38 and a Remington pistol grip 20 gauge.
A week from tomorrow another couple is coming over to shoot on my range and I’m going to snap her in on the Ruger 10/22 and the Kel Tec 2000 9mm as well.
She is very petite and soon will be 65, but can (when she shoots) hit the target every single time.
I only use targets with threatening BAD GUY FACES and many with full body targets, and all of them (target pictures) with weapons in their hands. That is critical…read ‘On Killing’ for the details…it is long proven those type of targets (over and over – targets with human faces) will make a huge difference with many people as far as actually be able to pull the trigger…when face to face.