Nothing much to report from Wall Street, Washington, or the ranch…
So we continue our look back at what we have learned so far…
Most of what we know, of course, is what everyone else knows, too:
Stocks are near record highs… with the Dow still trading above 24,000… and the so-called FAANG stocks – Facebook, Amazon, Apple, Netflix, and Google – still at levels not seen since the Nasdaq crash in 2000.
Include Microsoft and Nvidia, and you get a combined market cap of $3.8 trillion… up 7% this year and 37% over the last 12 months…
…debt is at a record high, too (and scheduled to go much higher). Not only are the feds borrowing at an unprecedented rate, The Wall Street Journal tells us that consumers are, too:
Interest rates are on the rise, but that hasn’t curbed Americans’ appetite for consumer debt.
If anything, consumers are borrowing more on credit cards or through auto loans than they have in years, and lenders seeking growth are happy to oblige them.
…interest rates are still about as low as they’ve ever been (the Fed Funds rate is at 1.42%)…
…and the “expansion” is one of the longest on record, at 105 months (the average is only 58 months). And it’s the weakest ever.
How these things came to be is a matter of debate. Some will say they represent the “inherent strength of the U.S. economy.”
But here is where we peel off from others. Here is where we think we know something they don’t.
Is the economy remarkably resilient? Yes. Resourceful? Yes. Strong? No.
The growth rate – probably the best measure of “strength,” has been generally softening for the last 30-plus years. And what “growth” there is… is spotty. Some areas are doing much better than others.
The big urban agglomerates, with many immigrants, tend to be dynamic and prosperous. Many other areas have been left behind, especially in former manufacturing regions of “flyover country.”
Some people, too, have done very well.
The richest 10% has gotten almost all the wealth gains of the 21st century. That means 90% of the population has gotten nothing.
The median man, for example, has lost real income (when adjusted for inflation), not just for the last 18 years, but for the last 40.
Cheated by the Elite
Adjusting for inflation is always a treacherous exercise… and usually rather squirrelly.
But a man in 1978 only had to work about 1,000 hours to afford the standard model F-150 pickup truck. Today, he has to work 1,200 hours.
That ain’t getting ahead. It’s falling behind. His major asset – his time – has become 20% less valuable. Meanwhile, stock owners have generally gotten much richer, with the real value of the Dow up about 10 times since the late ’70s.
In 1978, the common working man could have labored for about 200 hours and fully participated in American capitalism by buying all 30 Dow stocks. Today, he has to work 1,130 hours to buy the same capital assets.
The typical working stiff feels he has been cheated. But that’s another thing we think we understand and others don’t.
He’s been cheated. But not by the Mexicans… or the Chinese… or by bad trade deals. He’s been cheated by his own elite.
The Greatest Rip-Off in History
Hillary Clinton, George W. Bush, Alan Greenspan, Barack Obama, Janet Yellen, Mitch McConnell… and many thousands of others, most of whom don’t even realize that they are enabling the greatest rip-off in history.
These people are the insiders… the lobbyists… the Wall Street sharpies… the bureaucrats and cronies in government… the academia… the military/security complex… the medical industry… the mainstream media… and many others.
They make up a loose collection of elite who control the government and use it just as you’d expect – for their own benefit.
No matter who is in the White House, no matter which party controls Congress, these people – with their own internal rivalries and internecine wrangling for favors – are the real deciders. We call this group the Deep State.
You see, another thing we’ve realized is that the government is not really there to serve the “people.”
It is there to serve the people who control it. Who are they? Our elected representatives? The president? Hardly.
They don’t even know what it is doing. The federal government is far too large… with far too many fingers in far too many pies for the elected representatives to keep track.
That’s why lobbyists write the important legislation… such as last year’s tax cut… or Obamacare… or the recent tariffs on steel and aluminum. The politicians don’t even read these complicated rules and regulations.
Why does this happen? As government grows larger… and time goes by… smart people – the great Italian economist Vilfredo Pareto called them the “foxes” – figure out how to take charge.
This is not at all surprising.
It has happened to every government that ever existed. From ancient Rome, to the court of Louis XVI, to the Soviet Union, there is always a group of insiders who manage power for their own benefit.
Why does this matter?
In 1971, President Nixon ended the convertibility of the U.S. dollar to gold. Almost without realizing it, the Deep State got control of America’s dollar. By 1987, they had learned how to use their control to boost their wealth far beyond anything they had seen before.
But now, they face a new test: Their fake-money system may soon explode.
Chairman, Bonner & Partners