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October 31, 2018 | We Received a Surprising Phone Call…

Is an American author of books and articles on economic and financial subjects. He is the founder and president of Agora Publishing, and author of the daily financial column, Diary of a Rogue Economist.

My object in living is to unite
My avocation and my vocation
As my two eyes make one in sight.
Only where love and need are one,
And the work is play for mortal stakes,
Is the deed ever really done
For Heaven and the future’s sakes.

– Robert Frost, “Two Tramps in Mud Time”

YOUGHAL, IRELAND – The Dow closed up more than 400 points. End of the correction? Mr. Market’s fake-out?

In a bull market, you buy the dips. In a bear market, you sell the bounces. Which is it?

We don’t know yet, but our guess is that you won’t regret selling now.


Wrong Number

We are homeless in Ireland as we wait for our new house to be renovated. In the meantime, we’re staying at a remote hotel perched on a cliff overlooking the sea.

Last night, we had a telephone conversation with a woman with a silky American accent:

“Would you come to my room with a couple of champagne glasses?” she asked.

“Uhh… Are you staying in the hotel?”

“Yes, room 26… Come on up.”

“Are you the woman with blond hair who was in the lobby this afternoon?”

“Yes, why?”

“Well, it’s just that we’ve never met. This is a bit of a surprise…”


“And I don’t think this is a good idea…” We were about to explain that we didn’t do that sort of thing.

“Wait… Is this the front desk?”


The world is full of miscues and wrong numbers.


A Bit Odd

Meanwhile, over at the house we are renovating…

“So… you do this for fun?” An Irish workman was puzzled. Like Frost’s tramps in mud time, he wondered why this 70-year-old American was dressed in dirty jeans and a sweatshirt.

And why was he mixing cement and climbing a scaffold with heavy stones? The workman seemed genuinely concerned… and ready to call the mental health authorities.

“Yes… I like physical work,” we explained. “I’ve always done it – stone masonry, in particular. My career has been spent in front of a computer, studying things that are either lies, frauds, or misunderstandings. Nothing is straight, true, level, or plumb.

“Stone masonry is real… and solid. It doesn’t pretend to be something it is not.

“But getting the stone up on the scaffold is hard.”

He must have thought we were a bit odd… but perhaps not stark, raving mad. He shook his head and went back to his own work, as we returned to ours.


Some Dots

In the meantime… when we left off yesterday, we had just connected some dots. And a disturbing picture was coming into clearer focus.

Here’s what we’re looking at…

Government spending is now impossible to restrain. Donald J. Trump probably had the last opportunity to bring it under control. We suspected that the promise of “draining the swamp” was just a political feint. But we kept an open mind.

Now, we know… Instead of cutting the budget, he increased it. The deficit is projected to hit $1.3 trillion next year. And now, between the Deep State insisting on more money for “defense” and aging voters insisting on their pills and pensions, deficits are certain to increase.

The Fed is making Mistake #2, raising interest rates in order to try to return to “normalcy.” But it’s far too late. The damage from leaving rates too low for too long (Mistake #1) is already done.

The world is already out in the deep water, with a titanic debt of $250 trillion. Higher interest rates (tighter money) will sink it.

These two trends – higher rates and higher deficits – are incompatible. The Donald is right; the Fed is wrecking his beautiful economy.

But none of this is straight, true, level, or plumb. Every number is a counterfeit… every statement is a fraud… and everything that passes for truth is an outright lie.

As rates rise, it will become more and more expensive for the feds to finance its jackass, trillion-dollar deficits. Government borrowing will “crowd out” private borrowing, forcing rates up further and driving the whole shebang into crisis.

Higher rates are already starting to bite and blister. From CNBC:

Higher mortgage rates and overheated home prices hit Southern California home sales hard in September.

The number of new and existing houses and condominiums sold during the month plummeted nearly 18 percent compared with September 2017, according to CoreLogic. That was the slowest September pace since 2007, when the national housing and mortgage crisis was hitting.

Sales have been falling on an annual basis for much of this year, but this was the biggest annual drop for any month in almost eight years. It was also more than twice the annual drop seen in August. […]

On a monthly basis, sales fell 22 percent in September compared with August. Sales usually fall about 10 percent from August to September.

At “normal” interest rates, in many places, the average person cannot afford the average house.

At “normal” interest rates, the feds’ deficits get worse.

And at “normal” interest rates, the world’s debt sits like an iceberg waiting for the Titanic to show up.

Like ballast in a leaky ship, the excess debt worldwide – which we estimate at about $115 trillion – will go to the bottom.

Sell the bounce.




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October 31st, 2018

Posted In: Bill Bonner's Diary

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