As we begin 2017, we are witnessing extremes in sentiment which I can’t ever recall in my 30 plus years as an economist and investment professional. Everybody is on the boat in energy, stocks, bonds and of course the US dollar (the kingpin of the world). Stocks are at record highs with valuations seen only twice 1929, 2000 in the last century. All courtesy of fiat currencies which don’t float, they just sink at different rates! Government bonds are considered RISK free and economies seem to be perking up (in the short term anyway). Debt is disguised as GDP worldwide and debt spirals are underway throughout the developed world. When they collapse is anybody’s guess, but collapse they will.
Excessive Leverage is everywhere and if it wasn’t for NEW debt creation there would be no growth, no rising markets or record highs. GDP used to be the measure of the production of wealth, that changed at Breton Woods II and now it is the measurement of consumption of wealth. Our elected leaders have eaten it all and written checks against any future income. At this point debt creation is barreling along and hence economies appear to be moving forward. History is in the making and has been since the financial crash in 2008-2009.
Pent up optimism
The extremes in markets and sentiment are epic and unimaginable. Brexit and Trump have released pent up optimism (to levels rarely seen before) by those who produce and invest. Just like a spring that has been pushed down into a coil by Obama’s policies that assaulted the private sector and wealth creation. He and his minions have been a wrecking crew to financial security and wealth creation. Globally, no one invests in the US anymore - as they will confiscate the returns through higher taxes and regulatory costs.
Fixing the Past
The U.S has been rendered uncompetitive from progressive centrally planned policies and what Trump called “mindless trade deals.” Just the talk of Trump’s policies have released frustrations. It is a sight I haven’t seen before.
It is clear that progressive republicans (Ryan, Boehner, McConnell) cannot understand they are not there to build government or even sustain Obamas policies. They were sent to Washington DC to stop them and instead waived them through. They are now trying to delay the tax reductions and reform till next year… sound familiar?
When positive sentiment is at the extremes we now see, it is like being in a room full of natural gas and hoping no one lights a match. I believe we are near just such a moment. The Trump administration is just that match! The Trump administration is reforming our government to restart, reward and allow wealth creation and the other prominent nations of the world have no intention or plans to do so and say so bluntly. In fact, they are demanding he not reform our country’s economic policies. The Eurozone and Washington DC the elites hold their citizens in contempt and view them as sheep to be sheared. Washington DC has been in this mode (Clinton, Bush and Obama) but Trump wishes to reverse it. That game is increasingly over. The second American revolution is underway. They will reform or implode, many will implode under any circumstance. It will lead to interesting times and opportunities.
Runaway Money and Worthless Paper
Actuarial prudence has been increasingly discarded for political expediency for almost 50 years and at its end. Runaway money and credit creation are nothing but an attempt to ban scarcity, support economic failing policies, and fund the welfare state. Socialism is impossible without commercial banks and they and the public are drowning in unpayable and inextinguishable debt. Don’t worry. The debt will be repaid: with worthless paper Dollars, Euros, Yen, Pounds and Yuan printed out of thin air. A bond is an IOU denominated in an IOU. If one creditor doesn’t get you the other will.
Bonds are a two-edged sword, both sharp. If one lender doesn’t default the other will! Think about that statement carefully: if you hold a bond from Johnson & Johnson and the currency (fiat unsound money it is denominated in) loses its value, who gains or loses?
The True Nature of Debt
In the old testament, the word for debt and sin are one and the same. The world is choking on it as more is shoved down our throats by morally and fiscally bankrupt politicians and the bankers who control the process of money creation. In the past, these debt spirals were limited by reserve backed currencies. Now there are none and the excesses have mushroomed like an atomic bomb blast. Peek at the U.S. at www.usdebtclock.org The correction of this foolish behavior by bankers and politicians will be on a scale inconceivable to you and me.
Once again, it’s the greatest opportunity in history.
Bankers have used this cycle for hundreds of years to transfer a great majority of real property and wealth to themselves. Most of the greatest fortunes (Rothschild’s, JP Morgan, Rockefellers, Warburg, Kennedy, etc.) in the world were accumulated with this process over the last 400 years. It’s what we are working on at Doron; piggy backing on history. Thomas Jefferson knew these rascals well:
"I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around the banks will deprive the people of all property - until their children wake-up homeless on the continent their fathers conquered." Thomas Jefferson
We are nearing the end of this cycle and it is explosive in nature as the excesses are unwound, markets return to the mean and sustainability becomes important once more. There is nothing in the world that can stop this process but God and mother nature. They have always done it in the past and will do it sooner or later now. On that you can be sure. It also happens to be the greatest opportunity in history.
The Public Awakening
Trump and Brexit are the leading edge of the public waking up, and there will be hell to pay for those that betrayed their constituents of which there are many from both sides of the aisle. In Europe, Italy must leave the EU/Euro or perish in a Greek like economic and financial bonfire. In fact, the bonfire is inevitable. France and Portugal are not far behind. The insolvencies in the European banking/sovereigns and financial systems goes right to the top including the core countries of France and Germany. It has been building for decades and is very ripe. It will be a spectacular implosion and could start this year! The elites in France, Germany stand on the firing line.
Trumps reflation plans include restoring the incentives to produce is a powerful elixir for growth. There is no functional capitalist economy in the developed world, but the US dynamism can be restored. The second American revolution is underway, in our opinion, to restore constitutional government, incentives to produce, and roll back politicized central planning. Washington DC is exactly what the constitution was meant to prevent. The more it is rolled back the more we will thrive as a nation.
The Future of the Dollar
The dollar is poised to move almost 25 to 50% higher on his policies, which will crush foreign borrowers of the dollar increasing their 10’s of trillions of dollar denominated liabilities as measured in their home currency’s the equivalent amount.
There is a shortage of dollars internationally to service this debt, a big one. The principle export of the United States, has been and is, dollars. This process began at Breton woods after WWII, but spiraled out of control when Nixon changed the dollar from money to debt/IOU at Breton Woods II in august 1971. That was Nixon’s greatest crime. In one stroke of the pen he changed the money you are paid and store your wealth in, to a scheme where governments can endlessly confiscate your wealth while it sits in the bank. At this point they have confiscated 90% of the purchasing power since 1913.
The Trump Correction
As Trump reduces the trade deficits created by oil and merchandise trade deficits overseas dollar borrower’s ability to service their dollar denominated debt shrinks. What a dilemma! Who holds that paper off shore? Both lenders and borrowers? Both are in deep trouble when Trump policies succeed, and they will, every stop will be used to try and prevent Trump’s policies. The entrepreneurial spirit, the ability to create wealth and capitalism in US, are unequaled in the world - if you allow incentives to work rather than destroy them as progressives have done.
Removing the corruption of mindless regulations which prohibit: entrepreneurism, innovation, productivity, and capitalism, tilting the playing field to crony capitalist big corporations and elites who fund their campaigns and retirements. Capitalism is summed up in 7 words: more goods and services for less money! If you do that, customers will find you and you will thrive. Any family wants the best for their family. It is common sense. Look no further than the Pew study which outlines that since 2008 more small businesses have closed than have been created. These closed businesses were regulated and taxed out of business. Something the United States has never had happen in its history. Until the US creates more small businesses than those that fold, nothing has been fixed. Since Obama was elected, the United States has fallen from one of the top ten countries in ease of starting a business to 51st, ouch. This is one of Trumps main objectives to roll back political corruption that we see in that number.
"[A] wise and frugal government ... shall restrain men from injuring one another, shall leave them otherwise free to regulate their own pursuits of industry and improvement, and shall not take from the mouth of labor the bread it has earned. This is the sum of good government." - Thomas Jefferson