One of the saddest lessons of history is this: If we’ve been bamboozled long enough, we tend to reject any evidence of the bamboozle. We’re no longer interested in finding out the truth. The bamboozle has captured us. It’s simply too painful to acknowledge, even to ourselves, that we’ve been taken. Once you give a charlatan power over you, you almost never get it back.
– Carl Sagan, The Demon-Haunted World: Science as a Candle in the Dark (1996)
By David Stockman
Editor’s Note: I hope by now you’ve had an opportunity to take in Michael Coolbaugh’s Delta Profit Summit. Click here to view the archived version. It’s well worth your time. – DAS
Big spenders running for the 2020 Democratic nomination have been talking up a storm about expanded social programs, new “green” initiatives, free stuff for college kids and other needy folk – a bigger, better Welfare State generally.
(We should note, too, that they’ve outsourced impeachment to the national security establishment, so there’ll be no reigning in the Warfare State – indeed, some time soon, their promise will be something “better,” and, in Imperial Washington, inevitably reduces to, simply, “bigger.”)
It’s no surprise, then, that GOP spinmeisters have reverted to tried-and-true talking points, warning about how Sanders/Warren/Biden is fixing to saddle America with a socialist dystopia if given the chance.
As if their party hasn’t already done well more than its fair share of work toward that end…
The chart right up there shows the annualized rate of federal spending gain since 2012, when the U.S. economy had pretty much stabilized after the Great Recession and its aftermath.
If you’re under the delusion that the GOP is still the party of fiscal prudence – to say nothing of rectitude – let these figures speak to you for a moment…
During the 12 months ending September 30, 2019, federal spending rose by $307 billion. That’s 118% faster than the $141 billion rate of gain recorded under Obama the fourth quarter of 2016. It’s more than five times the $60 billion average spending gain between the fourth quarter of 2012 and the fourth quarter of 2016.
The Trumpified GOP has abandoned a core duty it once upon a time pursued with zeal and relish: to resist the encroachment of the state on capitalist prosperity and personal liberty.
Still, the more crucial point is that the twin threat of the Welfare State and the Warfare State has hammerlocks on both major American political parties.
This, friends, is the Duopoly.
The Trumpified GOP’s embrace of “guns and butter” with LBJ-style elan, even as it doubles down on its anti-tax allergy, plays right into the hands of the monetary central planners who run the Federal Reserve.
(Of course, this afternoon, the Federal Open Market Committee left its target range for its benchmark rate unchanged at 1.5% to 1.75% but also announced “not QE” will continue into April. Markets are rallying anew, even though former Fedhead Bill Dudley wants you to believe the “repo response is not fueling the stock market.”)
Against all available evidence and economic logic, they believe that pegging the money-market interest rate to the second decimal place is their sacred duty.
And, with zeal and relish, they are monetizing the public debt. They’re enabling the Tweeter-in-Chief and his party as well as the aspiring practitioners of “Modern Monetary Theory” currently auditioning to be what could very well be the incumbent’s next tomato can.
Whatever happens in November, in other words, the Duopoly’s fiscal debauch will rage unabated.
As of June 30, 2019, the federal debt held by the public stood at $16.19 trillion. It’s up to $17.18 trillion as of January 27, meaning bond pits have been flooded by $989 billion of new Treasury paper in the interim.
Basically, Uncle Sam has been emitting new debt at a $1.8 trillion annual rate since last June.
It also means the change in interest rates between these two dates is absolutely wacky.
All of that new Treasury paper came on top of surging credit takedowns by Wall Street speculators, who got back into the frontrunning-the-Fed business as soon as the Donald’s man Jerome Powell threw in the towel last winter and signaled that “normalization” of interest rates and “quantitative tightening” were done.
Well, now, indeed they have revved up the printing presses once again. And we’re ready for it.
In an honest market, of course, interest rates would’ve been rising – and smartly – in order to ration off excess demand and induce additional supplies of real money savings.
Of course, in a market totally pickled in “not QE” liquidity, the very opposite happened. The federal funds rate actually declined from 2.40% on July 3rd to 1.55% on Monday.
And the print-a-thon will continue. The Eccles Building has abandoned any pretense that the size of its balance sheet matters, or that massive monetization of the public debt troubles it in the slightest.
In fact, the upward notch at the right margin of the chart may prove to be one of the greatest inflection points in financial history.
With the unemployment rate at a 50-year low, the economy expanding at a moderate 2% rate, and the business cycle already in record territory beyond the old high-water mark of 119 months, the Fedheads have essentially decreed that nothing matters except the enforcement of its interest rate writ to the second decimal point.
This insanity has fueled the final blow-off phase of the greatest stock market bubble in history.
And, still, the entire Acela Corridor’s ruling elite – from Imperial Washington to Wall Street – seems euthanized to the developing calamity over which they preside.
Managing the Chaos
The 2020 election has replaced the Trade War as the primary risk for investors. That’s because, as we’ve been saying for some time now, this is the most politicized market in history.
And the Tweeter-in-Chief is still in charge. So, the situation is changing almost by the minute.
It’s “Impeachment!” in Imperial Washington and all over the Mainstream Media. It’s “Easy Money!” on Wall Street and across Bubblevision.
And it seems as if the whole world has, indeed, gone mad.
Amid this chaos, prices will continue to rise and fall, trends will continue to develop and dissipate.
Here’s where I usually say, “Well, The Stockman Letter is made for times like these”…
And I can say that because we brought aboard Michael Coolbaugh to update our design to help us better navigate to not only the safest harbors but also the most promising opportunities.
And he’s doing that. He’s also launched a complementary investment newsletter, Delta Profit Trader, that promises “higher frequency” engagement with markets.
Click here to view the “Delta Profit Summit,” where Michael explains his whole approach to investing in this environment.
The stakes are as high as they can be heading into 2020. Markets appear to be straining, catching up to an economy that’s been weak and getting weaker for years.
The Donald is tied up in the day-to-day movements of the major stock indexes like no president before him. The increasingly desperate incumbent will do anything he must to hold the White House.
It’s a major tipping point. And there’s no telling what the Donald’s great disruptions could do to your wealth.
You’ve got to be nimble to win in this market… and Michael’s here to help you do that.
To common sense.