Investments

Here’s the Straight Stuff on Some Real Dopes

By David Stockman  |  July 3, 2018

The larger the group, the more toxic, the more of your beauty as an individual you have to surrender for the sake of group thought. And when you suspend your individual beauty you also give up a lot of your humanity. You will do things in the name of a group that you would never do on your own. Injuring, hurting, killing, drinking are all part of it, because you’ve lost your identity, because you now owe your allegiance to this thing that’s bigger than you are and that controls you.

– George Carlin, Last Words (2009)

 

What in the world are these people smoking inside the Acela Corridor?

The Donald has made clear he’s not kidding on China, trade, and tariffs.

To Wall Street, it’s just high-stakes poker. And the Donald holds the winning cards: They sell us $505 billion per year, whereas the U.S. exports only $130 billion to China.

It’s just not that simple.

But, of course, the complexity of it all means Main Street gets the shortest straw. It doesn’t even get to draw.

But, as we’ve documented, our trade position with China and the rest of the world is primarily a result of bad money.

It’s got only very little to do with trade cheats and intellectual property theft.

The real stupidity rests not in Washington’s trade machinery.

It’s with past and current occupants of the Eccles Building.

This insane 2% inflation is the driving force behind the offshoring of U.S. production.

Its mindless pursuit has killed the “breadwinner” jobs that make a viable middle class.

And now a hollowed-out Flyover America has put what everyone else considers an economic madman in the Oval Office.

The pertinent question is this:

How long will the boys and girls on Wall Street whistle while economic and financial mayhem gathers on the horizon?

Here’s a Mainstream Media take on Wall Street, courtesy of CNBC’s ever-reliable-for-these-bubble-vision/groupthink-sorts-of-things Jane Wells:

I am the sort of person that says you may not like this president, he has broken the mold, but if by 2020 we have GDP growth near 4%, we’ve got a market like this, we’ve got record-low unemployment, we got more jobs than job applicants, and even our allies start to say, “We don’t like you, but let’s do something to make trade. We’ve gotta have you,” and our trade deficit starts to shrink – and maybe we have peace in Korea. How do you not reelect this guy, even if you think he’s a buffoon?

Wall Street has reached rock bottom; one definition of “insanity” is “doing the same thing over and over again and expecting different results.”

Last summer, these same people bought 100-year bonds from Argentina. In short, it’s worse than any bridge in Brooklyn or swampland in Florida.

Wolf Richter is always cogent:

So don’t cry for Argentina’s investors that inexplicably bought $2.75 billion of 100-year bonds with a 7.125% coupon in June last year, at the peak of the cheap dollar-debt benightedness.

Argentina sold these “century bonds,” which mature in 2117, at 90 cents on the dollar – and investors thought they’d gotten a sweet deal. And they sure had if they sold the bond when it peaked on October 30 at 103.94. This gave sellers a profit of 15%. Those that didn’t sell or that bought at the time are ruing the day.

The bond has since plunged 23% to 79.98 cents on the dollar by Friday, and is down 11% from the price when issued: 

The thing is, Argentina hasn’t even defaulted on it yet, though 11 months after selling the bonds, it has already gone begging to the IMF for a bailout. And the IMF, in another bout of debt-benightedness, has agreed to lend it $50 billion. But those $50 billion won’t be used to pay off the century bond. They’ll be plowed into government spending and will disappear, leaving Argentina with an additional $50 billion in dollar-debt.

Wall Street bid 100-year Argentine toilet paper to a 13% premium last fall.

Yes, reality came crashing down.

That something like happened explains how and/or why they don’t see a madman on the Potomac tossing matches at the helium balloons they’re riding.

This blind spot explains why the Donald may just be exactly the sort of refreshingly destructive catalyst we need now more than ever.

Any real investor in their right mind is racing toward the exits.

The Orange Swan has to take away before we begin to clean up the muck left after decades of monetary central planning.

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David Stockman

David Stockman is the ultimate Washington insider turned iconoclast. He began his career in Washington as a young man and quickly rose through the ranks of the Republican Party to become the Director of the Office of Management and Budget under President Ronald Reagan.MORE FROM AUTHOR