Punched in the Face

Bill Bonner, writing today from Baltimore, Maryland

“That’s it. I’m voting for Trump.”

Such were the words of [a member of our own household] when she got back from the grocery store on Monday.

“I got a single bag of groceries. I’m sure it would have cost me about $50 a few years ago. Now, it’s $120. It’s no wonder Trump has so much support.”

With these thoughts the country veered away from ‘more of the same’… to… more of the same. And today, we celebrate the exquisite blockheadedness of our great democracy.

The stock market reacted yesterday… anticipating easier credit. The Dow rose more than 1,500 points. And the world’s 10 richest people ended the day $64 billion dollars richer.

During the four years of the Trump Team, 2016-2020, the US saw the greatest wingding of government spending in history. The federal budget went from $3.8 trillion in outlays during Obama’s last year, to $7.2 trillion in Trump’s last year. The nation had never seen anything like it… with trillions out the door and down the drains in stimmies, PPP loans, and the like.

And then, as if that weren’t enough, the Biden Team came into office and added another $1.2 trillion of boondoggles and giveaways.

What happens when you add that kind of money to the economy? Milton Friedman, recently channeled by Elon Musk, explained:

Inflation is made in Washington because only Washington can create money, and any other attribution to other groups of inflation is wrong. Consumers don’t produce it. Producers don’t produce it. The trade unions don’t produce it. Foreign sheiks don’t produce it. Oil imports don’t produce it. What produces it is too much government spending and too much government creation of money and nothing else.

Chad Champion adds empirical evidence:

A recent study out of MIT showed that “the overwhelming driver of that burst of inflation in 2022 was federal spending, not the supply chain.” Recall that there was about $7.5 trillion in additional spending from March 2020 when COVID hit, through December 2022.

Trump planted wicked seed. Biden (and Harris) fertilized it and reaped the bitter harvest. Price increases showed up the year after Trump left office, with inflation ramping up to a 7% annual rate in the first quarter. In June, 2022, inflation hit a 9% rate. And while the rate of inflation has come down since then, the effect of sustained inflation at relatively high rates has raised prices across the board.

During the Biden years, the cost of energy rose 34%. Car insurance went up 56%. Hotels 45%. Peanut butter, 41%. The price of the basic Ford F-150 went from $30,000 in 2019 to $39,000 today — up 30%. The price of a new house rose from $380,000 in 2019 to more than $500,000 today — a 25% increase.

More than any human being on the planet, Donald Trump was responsible for these price increases. He was where the buck should have stopped. Instead, he passed out trillions of bucks. These are the bucks that raised consumer prices… and turned people against the Biden Team, helping Donald Trump retake the White House.

And now, apart from the personal wackiness and unpredictability of the man himself, the Trump Team will stick with the Primary Political Trend... which is toward more spending, bigger deficits and more debt. Investment markets know what time it is. Barrons:

Treasury debt gets ‘punched in the face’

The Treasury market, arguably the world’s financial backbone, is seeing yields erupt higher as investors respond to the big shifts that could come from a second Donald Trump presidency. This isn’t a buying opportunity. The yield on the 10-year note, a metric that sets rates on mortgages and credit cards, leapt Wednesday to close at 4.425%, its highest end-of-day value since July, from 4.290% on Tuesday.

Bloomberg:

US Treasury yields surged — with the 30-year rising the most since the global flight to cash in March 2020 — as investors piled back into bets that Donald Trump’s return to the White House will boost inflation.

Donald Trump is, after all, a “low interest guy.” As a leveraged New York real estate speculator, he understands as well as anyone what artificially low interest rates can do for rich people with financial assets. But as we’ve seen, ultra-low rates have a wretched effect on the real economy and real people with real jobs.

That is the indiscreet charm of American democracy. The politicians do the wrong thing for the wrong reasons. And the public, bloodied and abused, then re-elects the scoundrels who did it to them.

Regards,

Bill Bonner

Bill Bonner, writing today from Baltimore, Maryland

“That’s it. I’m voting for Trump.”

Such were the words of [a member of our own household] when she got back from the grocery store on Monday.

“I got a single bag of groceries. I’m sure it would have cost me about $50 a few years ago. Now, it’s $120. It’s no wonder Trump has so much support.”

With these thoughts the country veered away from ‘more of the same’… to… more of the same. And today, we celebrate the exquisite blockheadedness of our great democracy.

The stock market reacted yesterday… anticipating easier credit. The Dow rose more than 1,500 points. And the world’s 10 richest people ended the day $64 billion dollars richer.

And then, as if that weren’t enough, the Biden Team came into office and added another $1.2 trillion of boondoggles and giveaways.

What happens when you add that kind of money to the economy? Milton Friedman, recently channeled by Elon Musk, explained:

Inflation is made in Washington because only Washington can create money, and any other attribution to other groups of inflation is wrong. Consumers don’t produce it. Producers don’t produce it. The trade unions don’t produce it. Foreign sheiks don’t produce it. Oil imports don’t produce it. What produces it is too much government spending and too much government creation of money and nothing else.

Chad Champion adds empirical evidence:

A recent study out of MIT showed that “the overwhelming driver of that burst of inflation in 2022 was federal spending, not the supply chain.” Recall that there was about $7.5 trillion in additional spending from March 2020 when COVID hit, through December 2022.

Treasury debt gets ‘punched in the face’

The Treasury market, arguably the world’s financial backbone, is seeing yields erupt higher as investors respond to the big shifts that could come from a second Donald Trump presidency. This isn’t a buying opportunity. The yield on the 10-year note, a metric that sets rates on mortgages and credit cards, leapt Wednesday to close at 4.425%, its highest end-of-day value since July, from 4.290% on Tuesday.

Bloomberg:

US Treasury yields surged — with the 30-year rising the most since the global flight to cash in March 2020 — as investors piled back into bets that Donald Trump’s return to the White House will boost inflation.

That is the indiscreet charm of American democracy. The politicians do the wrong thing for the wrong reasons. And the public, bloodied and abused, then re-elects the scoundrels who did it to them.

Regards,

Bill Bonner

Regardless of anyone’s personal opinion on Trump, it’s clear that the international community is translating his “Putting America First” agenda as something more like “Every Man for Himself.” That could have a profound impact down the line, not just for our future trade prospects, but for the health of the economy and the U.S. dollar at large (which is still the world’s dominant reserve currency, for now).

At the same time, this is all very bullish for gold, as central banks are likely to continue buying for years to come. In this kind of situation, gold hitting $4,300 and continuing to rise higher was a foregone conclusion, and it’s clear that Trump’s agenda is locked in and unlikely to change.

Shares of regional banks and even investment bank Jefferies were hammered Thursday after fresh revelations from Zions Bancorporation and Western Alliance Bancorp.

Zions dropped more than 13%, Western Alliance fell 10%, and the SPDR S&P Regional Banking ETF (KRE) plunged over 6%, with all but one member ending the session in the red. It’s not the size of the losses — it’s the pattern that’s unsettling, in what are ongoing ripple effects from the banking crisis that rocked regional banks in early 2023.

Yesterday, Zions Bancorporation and Western Alliance Bank dropped 13% and 10% respectively, dragging the S&P 500 down with them.

In pre-market trade this morning, the broader banking sector also got whacked. JP Morgan was down 1.5%, while Citi fell 1.9% and Bank of America was down 2.9%. In Europe, meanwhile, the regional Stoxx Banking Index fell almost 3%.

The Federal Reserve stopped tracking “unrealized losses” at regional banks in 2022. But occasionally, a snippet of data will come to light, like this piece from the FDIC earlier this year.

History’s “golden” rule will soon apply again.

Shares of regional banks and even investment bank Jefferies were hammered Thursday after fresh revelations from Zions Bancorporation and Western Alliance Bancorp.

Yesterday, Zions Bancorporation and Western Alliance Bank dropped 13% and 10% respectively, dragging the S&P 500 down with them.

The Federal Reserve stopped tracking “unrealized losses” at regional banks in 2022. But occasionally, a snippet of data will come to light, like this piece from the FDIC earlier this year.

History’s “golden” rule will soon apply again.