Full Speed Ahead

Bill Bonner writing from Baltimore, Maryland

We came back from snowy Ireland to snow covered Maryland.

And this morning, we sit in front of the fire, and take a break from our customary rigorous analysis and air-tight logic to make some guesses.

As reported last week, the Musk/Ramaswamy DOGE group has already admitted that it can’t really eliminate the deficit. Not even half of it.

But it only took just a little math to see that coming, not a lot of guesswork. They would have to cut into the muscle of the Pentagon and into the guts of the transfer payments (Social Security, Medicare, Medicaid) to really make much of a difference.

They aren’t going to do that because the politicians are in control, not the ‘efficiency’ guys. Politicos get power for themselves by spending money, not saving it. So, it was inevitable that Musk would fall out with the MAGA crowd.

Steve Bannon was on the case over the weekend. New York Post:

Days after fawning over what tech magnate Elon Musk’s deep pockets could do for the MAGA movement, Steve Bannon went berserk on the world’s richest man and vowed to limit his White House influence. Bannon, 71, who hosts the “War Room” podcast and has a penchant for plotting all-out brass-knuckled political warfare, suggested Musk “should go back to South Africa” and decried his stance on H1-B visas.

A bit more guessy is our hypothesis that the Trump phenomenon doesn’t mark a real break with the past… but merely an acceleration in the rate of degeneration. More spending. More debt. More blatant corruption. More foreign adventures. More inflation… and so forth.

The press confuses the issue. It says Trump represents the ‘extreme right’ as opposed to the mainstream ‘enlightened liberals.’ In the minds of many, the Trump win represents a whole new thing… a new era in US politics.

And in some ways it does. But not the important ones.

Perhaps less in practice than in theory, traditional party politics pitted the ‘progressives’ against the ‘conservatives.’ The improvers — a role played by the democrats — wanted to use the strong arm of the feds to build a better world. Spend, spend, spend… for better schools, welfare for the poor, make the world safe for democracy, save the planet — you name it.

The role played by conservative republicans was avuncular… dragging their feet to slow them down… and using the Constitution to impose restraints.

But over time, the wily old Republican uncles realized that they could use the government’s ‘free’ money to buy votes and gain power too. And now, is there a dime’s worth of difference between the two parties?

Both spend trillions they don’t have, knowing that it will lead to higher prices for their own voters… Both approved the invasion of Iraq… and the attack on Libya… and the bombs and cash that get sent to the Ukraine and Israel (much of which comes back to the US firepower industry… where a portion of it is then spent to guarantee more spending).

Where they disagree is not on the direction of the ship, but the color of carpet and the wine served at the captain’s table. Like married couples, they argue over the details…and often duck real differences. But it didn’t matter what song they played in the bar…when the icy water rushed through the corridors, the Titanic was doomed.

Bush, Obama, Trump I, Biden — none departed from the Big Empire course. And now Trump II is promising even more glorious expansion — to Greenland, Mexico, Canada… and perhaps teaming up with Mr. Musk… to the stars!

We’re all passengers on this ship, whether we like it or not. Where will we end up? East, West, South or North? The best guess is that it will go down.

More to come…

Regards,

Bill Bonner

Bill Bonner writing from Baltimore, Maryland

We came back from snowy Ireland to snow covered Maryland.

And this morning, we sit in front of the fire, and take a break from our customary rigorous analysis and air-tight logic to make some guesses.

As reported last week, the Musk/Ramaswamy DOGE group has already admitted that it can’t really eliminate the deficit. Not even half of it.

Steve Bannon was on the case over the weekend. New York Post:

Days after fawning over what tech magnate Elon Musk’s deep pockets could do for the MAGA movement, Steve Bannon went berserk on the world’s richest man and vowed to limit his White House influence. Bannon, 71, who hosts the “War Room” podcast and has a penchant for plotting all-out brass-knuckled political warfare, suggested Musk “should go back to South Africa” and decried his stance on H1-B visas.

And in some ways it does. But not the important ones.

The role played by conservative republicans was avuncular… dragging their feet to slow them down… and using the Constitution to impose restraints.

But over time, the wily old Republican uncles realized that they could use the government’s ‘free’ money to buy votes and gain power too. And now, is there a dime’s worth of difference between the two parties?

We’re all passengers on this ship, whether we like it or not. Where will we end up? East, West, South or North? The best guess is that it will go down.

More to come…

Regards,

Bill Bonner

Back in April, when we published what we called the Trump Great Reset Strategy, we described the grand realignment we believed President Trump and his acolytes were embarking on in three phases.

At the time, it read like a conceptual map. As the months passed, it began to feel like a set of operating instructions written in advance of turbulence.

As you can expect, any grandiose plan would get all kinds of blowback… but this year exhibited all manner of Trump Derangement Syndrome on top of the difficulty of steering a sclerotic empire clear of the rocky shores.

The “phases” were never about optimism or pessimism. They were about sequencing — how stress surfaces, how systems adapt, and what must hold before confidence can regenerate. And in the end, what do we do with our money?!

Relative to GDP, the net international investment claim on the U.S. economy was 20% in 2003. It had swollen to 65% by 2023. Practically every type of American company, bond, or real estate asset now has some degree of foreign ownership.

But it’s even worse than that. As the federal deficit has pumped up the GDP figures, and made a larger share of the economy dependent on government spending, the quality and sustainability of GDP have deteriorated. So, foreigners, to the extent they are paying attention, are accumulating claims on an economy that has been eroded by inefficient, government-directed spending and “investments.” Why should foreign creditors maintain confidence in the integrity of these paper claims? Only to the extent that their economies are even worse off. And in the case of China, that’s probably true.

As global government interest expense climbed, gold quietly followed it higher. The IIF estimates that interest costs on government debt now run at nearly $4.9 trillion annually. Over the same span, gold prices have tracked that burden almost one-for-one.

Silver has recently gone along for the ride, with even more enthusiasm.

Since early 2023, Japan’s 10-year government bond yield has risen roughly 150 basis points, touching levels not seen since the 1990s.

Over that same period, gold prices have surged about 135%, while silver is up roughly 175%. Zoom out two years, and the divergence becomes starker still: gold up 114%, silver up 178%, while the S&P 500 gained 44%.

According to the American Association of Individual Investors, the average retail investor has about a 70% allocation to stocks. That’s well over the traditional 60/40 split between stocks and bonds. Even a 60/40 allocation ignores real estate, gold, collectibles, and private assets.

A pullback in the 10% range – which is likely in any given year – will prompt investors to scream as if it’s the end of the world.

Our “panic now, avoid the rush” strategy is simple.

Take tech profits off the table, raise some cash, and focus on industry-leading companies that pay dividends. Roll those dividends up and use compounding to your overall portfolio’s advantage.