I am in Florida and currently expecting a hurricane or some kind of effects from a hurricane in the coming days.  There are several economic lessons to take away from a hurricane or some kind of natural disaster.

It is a good lesson in supply and demand.  And while this may seem like Economics 101, I can only conclude that most people don’t understand it or don’t believe it based on their political views. Anyone who thinks there should be price gouging laws does not get it, or else they are being dishonest.

Almost a week before the hurricane was originally scheduled to hit, bottled water was running low in stores.  People went out early to stock up.  Some stores will limit the amount, while others have no official limit.  This is up to each store, just as it should be.

With social media now, you can typically find out places that may have the supplies you need. At the same time, because of social media, those supplies may not last long.  There aren’t many secrets.

With the storm only a few days away now, gas is running low.  People are filling up their tanks in anticipation of gas running low. There will really be a need for gas this weekend as people evacuating from further south will need it on their trip up north.

I have a heard a few people being critical of those stocking up supplies in advance.  I believe the line of thinking is that there are people buying 10 jugs of water, which means those who have not already gone shopping (not being prepared) will be stuck without any.

I would argue the opposite.  The people who stocked up early were not only doing a favor to themselves and their family, but also for the general population.  We bought a few cases of water (and I do drink bottled water regularly anyway, so it won’t go to waste) a week before when the storm will likely hit. This is much better for everyone that we didn’t wait.

Walmart (where we bought the water) and every other major store have inventory systems.  If you buy 3 cases of water, then that gets recorded.  If all of the water is gone from Walmart a week before the storm, the people ordering inventory (or the computer ordering inventory) know it.  There is plenty of time to get new shipments in before the hurricane hits.

If most people waited until the last minute, then there really wouldn’t be enough to go around. The shelves would clear out and there wouldn’t be enough time to get fresh shipments in.  And the store is probably not going to order more water if the shelves are already filled.

Prices

When it comes to supply and demand, prices are the key ingredient.  Prices act as a coordinator of scarce resources. If there is a high demand and low supply for certain goods, then prices should rise to reflect this.  This is part of the coordination process.

Unfortunately, do-gooder politicians prey on the economic ignorance of the general population by enacting these so-called price gouging laws.  This just serves to enhance the already existing problem of high demand and low supplies.

If there is a high demand for water, batteries, and plywood right before or right after a storm, then prices should be allowed to fluctuate to reflect this.  Some stores could have their own voluntary policy of keeping prices the same no matter what, and that should be their right.  Stores that didn’t adjust prices would find inventory cleared a lot faster.

If there is a high demand and low supply of water, higher prices will serve to help correct this situation.  Let’s say that a gallon of water usually costs one dollar.  Due to the high demand from a hurricane, maybe the price temporarily rises to five dollars per gallon if there are no government price controls.  This sends a signal to both buyers and sellers.  Suppliers are more likely to ship in extra supplies knowing that they can make a profit.  Meanwhile, some consumers will cut back on their purchases, likely buying only what is necessary.

Will some sellers be taking advantage of helpless consumers?  This really depends on what you mean by “taking advantage”. As long as it is a voluntary transaction between consenting parties, then I see no problem.  If someone really needs a jug of water, then I don’t think they will mind paying five dollars for it.  Maybe they will be irritated, but they don’t have to buy it. If it is a choice between buying a jug of water for five dollars or not buying any at all, I would rather have that choice than have the choice made for me that there is none available.

This is what price gouging laws do.  They make supplies unavailable.  Those caring, compassionate politicians would rather see you not have a choice to buy water for five dollars.  So even if you desperately need water for baby formula, they would rather see your baby starve than to have a seller “rip you off” by charging five dollars.

Human Economics

I know that many people consider economics to just be a boring type of science that sounds good on paper but is not useful in real life.  But if you are practicing good economics, then it is should be useful in real life.  In fact, that is its purpose.  We don’t study economics just so we can sound smart (although some might). Economics is so vitally important because it tells us about real world consequences.  It has everything to do with human prosperity and human suffering.

When people are secure in their property and are allowed to voluntary interact (or not interact) with others, then we tend to see prosperity.  It doesn’t mean that life is perfect or that nothing will go wrong.  It just means that it is the most efficient system for human flourishing.

Waffle House has a reputation for opening its doors quickly after a hurricane strikes.  This is a major benefit to those in an area that has been devastated by a hurricane.  People can get food and a little bit of comfort after this ordeal.  If they have a little money and can get to a Waffle House that is still standing, then someone will be there serving them. These are the true American heroes that make the world go around.

There is now about $17 trillion worth of bonds paying (collecting?) negative interest rates on a global scale.

The whole financial system has largely been in uncharted waters since the financial meltdown of 2008.  With widespread negative interest rates, it is hard to know what to expect.

The crazy thing is that these negative yielding bonds are not a third-world phenomenon.  In fact, two of the largest economies – Germany and Japan – have negative interest rates even on their long-term debt. The interest rate on a 30-year German bond recently went negative.

I thought it was insane looking at 10-year bonds with negative yields.  Now we are looking at the prospect of negative yields for 30 years.  Imagine sending your money off for 30 years, only to get less of it back at the end.  You better hope for major deflation.

If you want to look at something even more insane, Austria issued 100-year bonds, which are now yielding close to 1%.  For 100 years, I wouldn’t trust getting any of my money back, regardless of inflation. What are the chances that Austria doesn’t default on this?  What are the chances that Austria still exists in its current form in 100 years? I hope the children and grandchildren of these bondholders have good record keeping.

So why would anyone buy a bond that matures in 100 years?  The obvious answer is that they don’t intend to hold it for 100 years.  It is something of the greater fool theory.  And if they think 1% per year is the best they can do over the next 100 years, that is a sad look into the future.

Chasing Yield

There is obviously a major problem around the world right now.  The United States has major problems, yet looks so much healthier (economically speaking) than almost everywhere else.  Maybe Singapore is in better shape, but I am talking about the major countries with significant populations.

There is a stock bubble and a bond bubble.  I expect the stock bubble to pop first.  The bond bubble may get even bigger when the stock bubble pops. The bond bubble will eventually pop, but it is hard to say when.

People are chasing yield.  Savings accounts pay almost nothing.  It is a victory these days when you can buy a Treasury bill for 2%, which probably doesn’t even keep up with price inflation.

The yield curve is currently inverted.  The yield on a 30-year U.S. government bond is lower than a one-month Treasury bill.  This indicates serious problems ahead.  There is going to be a massive correction.

I believe that the low yields over the last decade have contributed to the stock bubble. Investors are chasing yield. Probably the least risky investment with the potential of significant returns over the last decade has been real estate.  But most people don’t have enough money to buy investment real estate, and they don’t like the idea of being a landlord.

That leaves stocks. Investors have to take the significant risk of buying stocks in order to hope for any kind of decent return. It has worked up until now.

But being heavy in stocks is risky.  Even if you buy a broad-based index fund, it doesn’t take away the risk. Sure, the risk is lower than owning one individual stock, but you can still lose a lot.

The problem is that it is an overall stock bubble.  It isn’t a bubble in just one stock, or even just one sector.  That is the mark of a recession coming.  Nearly everything goes down in a recession. This is the artificial business cycle.  It is called artificial really because the boom is artificial.  The boom is not fully real.  It is an illusion based on easy money and artificially low interest rates, which were particularly prevalent from 2008 to 2014 in the U.S.

The Austrian Business Cycle Theory explains the artificial boom and bust.  The Austrians buying 100-year bonds are probably not too familiar with this theory.  It helps explain why the bust is a widespread correction.  Some industries may bust more than others, but it is still widespread.  This is because of the tampering by the central bank of the money supply and interest rates.  Since money makes up at least half of nearly all transactions, it is vitally important in the economy.  If interest rates are sending the wrong signals, massive distortions will occur.

Shifting to Gold

Gold has had a good run lately.  Maybe it would be more accurate to say that currencies have had a bad run lately.  Gold has shot up past the 1,500 mark in terms of U.S. dollars.

I think that people are eventually going to come to their senses and realize that these negative interest rates make little sense.  There are going to be defaults eventually, maybe even by major governments.  There are already major defaults in the sense that inflation takes away any potential returns. Even in the U.S., where nominal interest rates are positive, the real (inflation-adjusted) return is flat or negative.

When stocks pop and bonds begin to pop, then people are going to be seeking safety for their money. This will be especially true if central banks react with more digital money printing, which is a rather safe assumption.

In some countries, the bond bubble will pop just with yields returning into positive territory.

Where will people go for safety and security?  The obvious answer is gold.  That is what gold is known for.  It was a form of money for thousands of years.  Now it is like an insurance policy.

But for those who got in early, this insurance policy could be profitable.  Even just marginal changes in the number of people interested in buying gold could mean a big boost.  The paper or physical market in gold is nothing like the bond market or stock market.  It won’t take as much to move gold much higher.

Silver has also been showing signs of life.  I think there are bigger profit potentials in silver than gold. You could see silver go to many multiples of what it is now in just a few short years.  But it comes with the risk.  Therefore, I still tend to favor gold over silver.  Central banks buy gold, and it is more stable.

If you want to split up your investing in metals (and insurance), then maybe go with 10 to 20 percent in silver and the rest in gold.  I think this is a good balance.

Just remember that gold and silver will have their bubble eventually too.  We have seen it before.  It is appropriate to take a little off the table on the way up, but you also want to make sure you have a significant portion for the full ride.

Gold will have to get way past its all-time nominal high before I would consider doing anything in terms of selling.  Even then, I would be looking at $4,000 to $5,000 per ounce before taking anything significant off the table.  That would even depend on how things look and what the Fed is doing.

We really have no idea how this whole stock and bond bubble will play out.  We have no idea how the U.S. government and other governments will handle it.  We have no idea how central banks will handle it except for likely creating more money out of thin air.

Despite the uncertainty, I do expect gold to shoot to new highs in the next few years, if not sooner.  Gold would typically go down in a recession, especially in a recession with little fear of inflation. But with negative yielding bonds, I don’t think the price of gold will stay down for long.  People will be looking for someplace safe to put their money.

Donald Trump has some good political instincts.  He is brilliant when it comes to marketing, particularly in branding his political opponents.

Think about Trump’s past victims from his ability to brand:  Lyin’ Ted, Low-Energy Jeb, Lil’ Marco, and Crooked Hillary. There have been some lesser-known ones such as Sloppy Steve, after Steve Bannon was separated from the Trump team.

Now we get to look forward to the current Democratic candidates.  He already has some names, including Senator Pocahontas and Sleepy Joe.  Joe Biden actually got off easy.  Unfortunately for Trump, much of the country may want someone sleepy in the White House after four years of Trump.

One thing I have appreciated about Trump over the last 4 years (since his campaign started in 2015) is that he helps to expose the deep corruption at the top.  He helps to expose that there really is a deep state. It is not always intentional by Trump, but nonetheless, he has helped to slightly weaken the establishment.

Trump has also exposed the establishment media as fake news for anyone paying attention.  This has been intentional by Trump because he is so often a victim of their fake news.  Even if you don’t think the media is outright lying, there is little question about the bias.

Unfortunately, Trump’s rhetoric has not brought forth any significant change for the better in policies.  He has surrounded himself by war hawks.  He, along with Congress, is running even more massive deficits, as spending is completely out of control.  He continues the invasion of our privacy, even though Trump himself was likely a victim of the NSA and the intelligence agencies.  Trump has continued the brutal sanctions and support for war in Yemen, while reenacting sanctions on Iran.

Aside from Trump helping to expose the deep state, about the best you can say about him is that he has yet to start a new major war.  It is sad that this is considered success.

Wrong Economic Instincts

Unfortunately, although Trump has some good instincts when it comes to politics and marketing, this did not carry forward to the part of his brain that thinks about economics. He is a complete dolt, which I have known for a long time.  At one time, in 1999, he supported a massive wealth tax on the rich.

Now Trump is in over his head with his trade policies, which basically consists of him making threats and hiking tariffs.

There are some supposedly free market people in the Trump camp who say he is playing 4-D chess and that he would be willing to reduce all tariffs to zero if the other side (or sides) would agree.  I don’t think this is the case at all.

The Chinese government is pushing back because the political class there feels like they have been pushed into a corner.  They are not likely to offer a deal where all tariffs are eliminated. And even if they did, I don’t think Trump would take that deal.

The Chinese are responding the only way they know how, and that is to implement their own tariffs or sanctions against trade.  They are intentionally trying to hurt certain sectors, such as farmers, to hit Trump where it counts.  It may work.

The ultimate nuclear option for China, at least in terms of economic policy, would be to dump the over one trillion dollars in U.S. Treasuries held by the Chinese central bank.  There has only been mild talk of this possibility, but no serious talk by senior officials.

According to the latest data, China still owns over $1.1 trillion in U.S. government debt.  This has decreased slightly, but nothing significant, or at least nothing significant in terms of the numbers we are dealing with.

Japan has briefly taken over the number one spot for central banks owning U.S. government debt. But this is more a result of Japan buying than China selling.

Chinese officials could certainly cause a lot of trouble by just credibly threatening to dump U.S. debt.  But they show no will to do so at this time.  I think they would really have to feel like there are no options left to do this.  If China goes into a deep recession, then anything is possible.

On Friday, August 23, 2019, Trump took to Twitter to make more threats about tariffs.  He said that U.S. companies should start making plans now to get their manufacturing out of China.

When the left calls Trump a fascist, they typically do not know what they are talking about. In this case, Trump is acting like a fascist.  Economic fascism is the state controlling business.  This is what Trump is doing.  It may not be to the same degree as Bernie Sanders or Elizabeth Warren would promote economic fascism, but it is still very anti free market.

Sanders and Warren are called socialists at times, and Sanders has even referred to himself as a socialist on many occasions.  But their economic policies are a combination of state ownership (socialism) and state control (fascism).  Even when it comes to healthcare, it isn’t completely clear that they would implement total socialism.  The doctors would not technically be employed by the government.  The hospitals would not be completely owned by the government.  They would just be completely under the government’s thumb.

Trump’s Economy

After Trump’s latest threats, stocks took a dive.  The Dow ended the day down over 600 points.  This all seemed to be in reaction to Trump and his threats to increase tariffs even more.

Trump’s economic idiocy is impacting his politics.  He is shooting himself in the foot on this one.  It will be easier for people to pin the blame on Trump when the economy goes in the tank.

Of course, Trump’s tariffs are harming us (the American consumer).  They are harming the Chinese people.  So I don’t really care about Trump and his politics except that I don’t want someone even worse in the White House.  That seems almost impossible at this point, but you should never underestimate the damage that a president can do.

Aside from China, Trump is targeting two parties to blame his economic problems.  One is the Fed, but his wrath has really gone in particular to Jerome (Jay) Powell, whom Trump appointed.  Powell is Trump’s scapegoat for when things go wrong.

The other party Trump is blaming is – no surprise – the media.  Trump says that the media is talking down the economy by mentioning the possibility of recession.

Maybe the establishment media is talking about recession a little more than in the past.  But when it comes to a financial network like CNBC, I think they still would have reported on the inverted yield curve and its historical ability to predict recession even if Trump were not president.

Trump is now saying that the media is trying to talk the economy into recession.  This is his Plan B.  He still brags about how great the economy is.  But, if and when things go bad before the 2020 election, Trump needs a fallback plan.  He will blame the media and the Fed.

He is right to blame the Fed, but not for the reasons he is blaming the Fed.  It was the Fed’s massive monetary inflation from 2008 to 2014 that is to blame for all of the misallocations and bubbles.

I don’t think Trump’s plan is going to work.  Voters, at least on the margin, will blame him.  If he had continued from his campaign to say that we are in a giant bubble, then maybe he could survive an economic downturn.  But since he continually brags about his economy, he will take ownership for the downturn, whether he likes it or not.

Trump’s tariffs will not be the cause of the next recession, but they can trigger these down days in stocks.  His tariffs will seem to coincide with the recession.

It is curious that almost nobody seems to question where Trump gets the authority to implement these tariffs on his own.  We are supposed to have a Congress that enacts laws.

I know they use some arcane laws that the president can enact tariffs for national security. I don’t think these laws are constitutional, but that doesn’t stop anything.  Still, it is quite a stretch to say that these tariffs have anything to do with national security.  Most of the reasons Trump gives have nothing to do with national security.

Of course, the left and the media (somewhat redundant) are not going to challenge Trump on this main point.  They will complain about Trump all day long, yet they won’t really question his power.  They like the presidential power.  They just don’t like the president who is currently using it.

In terms of Trump trying to blame the media for a recession, I don’t think it is going to work, except for maybe a small number of naïve people who would support Trump no matter what anyway.

While the general population doesn’t understand economics well, I think there is a basic instinct to know that the media can’t really talk the country into a recession.

Maybe they can make things look worse than they are.  This could have a small short-term impact on people spending their money. Of course, with the Fed’s distorted interest rates, we probably need far less spending and more savings and investment than what is taking place.

If the economy were really as strong as Trump says, then it wouldn’t matter what the media says. If people have money with real value in their pocket, then their own personal economy is doing well.  If you are not stressed out about money because you are doing well, then it doesn’t really matter what the media says.

Unfortunately, this is not the reality for much of middle class America, including many Trump supporters.  Technology keeps getting better, which is a great benefit to us.  And it will likely continue, regardless of the economy.

However, middle class America is struggling to keep up with the rising cost of living. Unemployment is low, but the wages aren’t keeping up with the costs of some of the basics in life such as medical care and housing.

Life is expensive right now.  We actually need a recession to help correct some of this, although it will be painful to go through.

In this instance, I think the media is right to warn of a recession, at least to the degree that they are actually doing so.  It will not be the media’s fault for talking us into a recession when it actually hits.  It is just reality.

Trump is great at branding, but his branding of his main opponent in 2020 will be useless if we are in a recession.  Trump will deservedly lose in 2020 if we are in a deep recession.

When I write about politics, libertarianism, economics, and finance, I like to keep a big picture view of things.  But with the Jeffrey Epstein story, I can’t help get into the weeds.

There are many past victims of Epstein and his fellow evildoers.  So even though this reads like a soap opera, I do want to acknowledge that we should not lose sight of those who were harmed.

I think this story is relevant for more than just an interesting story with a lot of conspiracy theories to go along with it.  Even if you believe the official establishment story, that in itself is still a conspiracy theory.

The amazing thing about this whole Epstein saga is that if you made a movie about it and showed it to someone who had no previous knowledge of the Epstein story, they wouldn’t believe it.  It would seem about as realistic as Jurassic Park.  At least with Jurassic Park, there is an outside possibility of technology being able to recreate dinosaurs.

I wrote about Epstein not long after he supposedly committed suicide.  I noted (repeating Dave Smith) that even if you believe the entire official narrative, it still shows vast corruption at the top.  The guy was a high-profile pedophile who was given a slap on the wrist.  And then when he is finally arrested a second time, the prison allows him to die in custody.

I have noted many other strange things about this case.  It is something like a soap opera, or maybe a Seinfeld episode, where everything seems to link together somehow.

Here is a list of the many crazy things about this story, many of which are stranger than fiction.

1. Bill Barr is the attorney general who acted outraged when Epstein was found dead. Barr worked for a law firm that once represented Epstein.  It was also reported that Barr’s father, Donald Barr, actually hired Epstein about 45 years ago.  Even though Epstein was a college dropout, he was hired as a high school teacher by Bill Barr’s father.  So when Barr says he wants to investigate the Epstein case, including where he got all of his money, maybe he needs to investigate his own father. Some reports since then say that Donald Barr left the high school before Epstein came on, but most reports still point to Barr having hired Epstein.  I think Barr is something of a deep state plant, which is why I don’t expect much more out of the Russia hoax.
2. Alexander Acosta was the prosecutor who gave Epstein the easy plea deal back in 2007/ 2008.  Acosta was recently pushed out as labor secretary after Epstein was arrested again in 2019.  Why didn’t anyone question Acosta during the confirmation hearings on this? There are reports that Acosta was told to give Epstein the easy plea deal by higher powers.  It is also noteworthy that Robert Mueller was head of the FBI at the time, and many suspect that he was involved in protecting Epstein.
3. Trump knew Epstein at one time.  He said good things about Epstein, but he also made a comment that he likes his women on the “younger side”.  This is why I doubt Trump was part of Epstein’s pedophile ring.  He wouldn’t have made those comments if he had been guilty of something similar himself.
4. Alan Dershowitz was on Epstein’s original defense team.  He is also suspected by many to have been a part of Epstein’s pedophile rign.
5. Ken Starr (the supposed investigator of Bill Clinton) was also on Epstein’s original defense team.  It is no surprise that Starr never uncovered anything relevant regarding the death of Vince Foster.
6. James Comey’s daughter had been named as part of the prosecution team in the second (recent) indictment.  Was this to keep control of things in case Epstein made it to trial alive?
7. Ghislaine Maxwell is thought to have been Epstein’s girlfriend and madam, arranging to get girls for Epstein.  She attended Chelsea Clinton’s wedding in 2010.
8. Ghislaine Maxwell’s whereabouts were unknown right after Epstein’s death. Someone finally spotted her at an In-N-Out restaurant in California.  She was reading a book titled “The Book of Honor: The Secret Lives and Deaths of CIA Operatives”.  Again, you couldn’t make this stuff up.  It is suspected by many that Epstein was a CIA man, which would explain how he got so much protection.
9. Flight logs show that Bill Clinton flew on Epstein’s private jet at least 26 times.  If Clinton was taking multiple trips to Epstein’s private island, I doubt it was to discuss real estate deals.
10. Sources report that there was a painting of Bill Clinton in a blue dress and high heels in Epstein’s New York house.  That is just bizarre.

Isn’t it amazing how all of these big players seem to tie into the story?  It certainly isn’t clear about everything that went down, but it does show just how utterly criminal certain parts of the ruling class are.  I already know of the corruption and criminality just based on the policies of war, starvation (sanctions), and theft.  But this Epstein story should really show the common person what kind of system they are living under.

I don’t expect everyone to all of a sudden denounce the state root and branch.  But when these types of cases happen, and a majority of people don’t buy the official narrative, it is positive for liberty in the long run.  It delegitimizes the state.

It was another wild week on Wall Street, or in today’s world, a wild week looking at the financial markets on a computer screen.  Stocks went on a roller coaster ride, although it was more down than up.

This was largely in tandem with falling interest rates.  Rates across the board fell, but long-term rates fell more dramatically.  The 10-year yield got down to 1.5% at one point, while the 30-year yield on U.S. Treasuries briefly dropped below the 2% barrier for the first time ever.

The 20-year yield is now lower than the short-term rates.  The 30-year yield is close to the short-term rates and is currently below the one-month yield.  The 10-year yield has already been below the short-term rates.

In other words, the yield curve is mostly inverted, which is a classic and reliable indicator for recession.  For some reason, CNBC and much of the rest of the financial media were talking this week about the 10-year yield briefly inverting with the 2-year yield.  But this is almost meaningless at this point.  The 20-year yield and 30-year yield are already below the 1-month yield.  It would be like someone pointing out that there is a hurricane 500 miles offshore, while there is a tornado headed straight for you that is a mile down the road.

The mainstream media, surprisingly, is actually mentioning the word “recession”.  There are some people who are saying that, this time, things might be different.  You always get that.  But there are regular establishment talking heads who are warning about the possibility of recession.  And I don’t think it is just because Donald Trump is president.

Speaking of Trump, he is setting up Powell and the Fed to take the blame when things go bad.  But Trump keeps carrying on with his tariffs and threats of tariffs, so I think he is going to take a good part of the blame when the economy sinks, assuming he is still in office.  As harmful as the tariffs are, I don’t think they will be primarily responsible for a recession, but the general public may think differently.

Trump even mentioned the inverted yield curve in a Tweet.  Someone made him aware of this.  And the media is catching on as well.  I don’t remember a lot of talk about the inverted yield curve back in 2006 and 2007, but maybe I am just forgetting.

Don’t get me wrong here.  The news coverage on CNBC is not all about the yield curve and the likelihood of an upcoming recession.  They can only talk about this so much.  They will carry on talking about a CEO who resigned or a corporate board that is shaking things up.  They will talk about new business ventures and mergers.  But as much as they talk about this stuff, it becomes mostly meaningless to the average investor if a recession hits.  Even if you pick a seemingly good company to buy, your shares will still likely go down in a recession.

Cause and Effect

The interesting phenomenon to me is that stocks don’t go down in tandem with the long-term yields. While nothing is guaranteed in life, an inverted yield curve is a nearly fail-safe indicator that a recession will begin within 24 months.  So why don’t stocks price this in?

If the Federal Reserve comes out and says that it will probably lower its target rate at the next meeting, stocks will likely go up.  They may not go up on the actual day when the target rate is lowered.  That is because the price already reflects the news that was known.  This is why you may here the saying to buy on the rumor and sell on the news.

It’s also the same reason that a company with zero profits may be worth millions or billions of dollars.  The market anticipates that there will be significant profits some day in the future.

So that brings us back to the yield curve and stocks.  Why don’t stock investors sell as soon as the yield curve inverts?

I don’t know if I have a good explanation for this other than to say that the bond market is more sophisticated than the stock market.

Think about all of the average people you know who contribute money to a retirement plan and the money just automatically goes into an index fund.  Most of these people are not sophisticated investors. They probably know nothing about the yield curve, and if they did, they wouldn’t act on it.  It actually takes effort to go into your 401k account and sell off some of your mutual funds to put them in bonds or a money market account.  Some of them may do this when they see that the market has crashed 30% and they start to panic, but they won’t do it when stocks are near their all-time highs.

Now let’s think about the sophisticated stock investors.  They know that, historically, there is a time lag between when the yield curve inverts and when stocks have a major sell-off.  You almost have to wonder if some investors are just waiting to get out.  They are going to take advantage of one last bull run.

I am not willing to take that chance.  I would rather be out too early than too late.  I own some stocks as part of a permanent portfolio, and I also have some gold funds for speculation.

I would like to invest in a few bear funds (short the market) to take advantage of the situation when stocks do finally come tumbling down.  But I haven’t taken that step yet in this current cycle. The reason is because I know there is typically a lag.  The yield curve will probably flip back to normal before we actually see the recession.

So maybe I am answering my own question with my own actions.  I may decide to short the market, but I haven’t done it yet. I won’t wait 24 months though. Maybe I will start shorting a little bit in a few months and then add to my position in early 2020.  I do expect the recession to begin in 2020, but I obviously can’t guarantee this.

My own actions are giving me the only logical explanation on why stocks have not already completely crashed given the inverted yield curve.  The people who actually pay attention to the yield curve understand that it takes time for things to play out.

The yield curve does not cause a recession.  It is a recession indicator.  Investors are locking in longer-term rates in anticipation that short-term rates are going to fall more in the future.  Otherwise, it wouldn’t make sense to take a lower rate on a longer-term debt instrument when you can buy a short-term Treasury with a higher rate.

Maybe the recession will happen faster than it has in the past.  Maybe stocks will crash faster than in the past as compared to when the yield curve inverted.  I am not ready to speculate on this yet, but I am also not willing to bet that it won’t happen.  Still, my best guess at this point is a recession and stock market crash in 2020.

The establishment is getting weaker, which is positive for liberty.  You can call it the establishment, the deep state, or the power elite, but it is quite obvious that there is a ruling elite that is not equal under the law and that rules over us at our expense.

The majority of the U.S. government is not part of this power elite.  Many are bureaucrats who try to milk the system, but even many of these people are getting milked more than what they are getting out of it.  They just don’t realize it.

Even within the so-called intelligence agencies, I am sure that most people are not evil. When it comes to the FBI, the CIA, and the NSA, it is just a select few at the very top who are really part of the evil deep state.

I think the U.S. government is like a giant tree that is very expansive and even looks healthy on the outside.  But on the inside, it is rotting.  It is so big, it seems like it will never fall.  But every now and then, you see a rotten branch break off from the tree. And when bigger branches start to fall, let alone the whole tree, you need to watch out because it will do some damage.

I think one of those smaller branches fell recently with the reported death of Jeffrey Epstein.

I doubt that any of the big players with Epstein will be exposed in the sense of them actually going to prison.  But the story is certainly exposing some of the rot that exists.

The whole story is obviously crazy.  The guy knew a lot of big names.  He likely had dirt on a lot of these people.  He had reportedly already tried to commit suicide, but then managed to do it anyway, if we are to believe the official narrative.

As Dave Smith recently pointed out in this excellent podcast episode, even the official narrative doesn’t look good.  Even if everything the establishment media is telling us is true, the power elite looks incompetent at best, but more likely really corrupt to the average person.

https://www.youtube.com/watch?v=UOMPEhE9HGQ

Epstein was originally prosecuted many years ago and got off with a plea deal that landed him a short prison sentence, which wasn’t even full prison.  The guy who gave him the plea deal, Alexander Acosta, ended up in Trump’s cabinet and was recently forced to resign.  But Acosta has insinuated that he was told by higher powers at the time to give Epstein the plea deal.  In other words, the government failed to put this guy behind bars when it was pretty well known that he was a pedophile.  This is pure corruption coming from the establishment.

Then he ends up being arrested again this year and is obviously a high risk for suicide. Of course, there is an even bigger motive to see him dead from those who were involved with his pedophilia ring. Epstein has now supposedly committed suicide while in jail, which shows total incompetence or neglect at best.

The Clinton Crime Family

Prior to the Epstein suicide, I read several blogs and memes that poked fun at the Clintons. The Babylon Bee ran a headline saying that people with dirt on the Clintons are 843% more likely to commit suicide. I saw other posts that said with Epstein knowing the Clintons, we should not be surprised when he commits suicide.

The memes have only gotten better since Epstein’s reported death.  The “Clinton Body Count” was trending on Twitter.

I have known about the Clinton body count for about 20 years, even before I became a hardcore libertarian.  The number of people closely associated with the Clintons who either ended up in prison or with an early death is extraordinary.  It is disproportionate by a large margin, even when taking into account that they obviously know a lot of people.

As Dave Smith pointed out, it should be a red flag just by looking at the people who associated closely with Epstein.  Trump knew Epstein, but it is not clear how well.  The Clintons were very close with him.  If the people around you found out that one of your best friends was a pedophile, do you think they would look at you a little differently, especially if you didn’t completely disassociate yourself from the person when it was obvious?

As Dave Smith also pointed out, Trump was lambasted by the media just because David Duke supported him.  Meanwhile, the Clintons were actually close to Epstein, yet you hear little about it.

Back in 2016, I wrote about Trump invoking Juanita Broaddrick’s story in his campaign. I then wrote the following:

“I think the next step will be to link Bill Clinton with the pedophile Jeffrey Epstein.  Clinton has taken repeated trips on his private jet.  Personally, I would be surprised if Bill Clinton isn’t a pedophile.”

I already knew that Epstein was a pedophile.  I knew Bill Clinton was associated with him.  I knew there were credible reports about him flying on Epstein’s private jet many times to his private island.  Do you think Bill Clinton was just doing real estate deals with Epstein on the island?  All signs point to Bill Clinton being a pedophile, yet we hear almost nothing about it from the establishment media.

Of course, I knew there was a seemingly credible woman named Juanita Broaddrick who accused Bill Clinton of raping her.  But that was before the “MeToo” movement, so I guess it didn’t mean much in the 1990s.  But how many of the “MeToo” people voted for Hillary Clinton in 2016, who tried to destroy the women who accused Bill Clinton of things?

I would love to the see the Clintons go down.  I don’t think it is going to happen, but I think their reputation has already taken a significant beating.

I understood Dave Smith’s sentiment that we already know Hillary Clinton is evil because she was so flippant about destroying Libya.  She is a war hawk.  But the American public, for the most part, doesn’t see her as evil for this. If they think she is knocking off people who get in her way politically, then she will certainly be looked at as the murderous evil person that she is.

I think it is amusing that some of the left are actually forced to reply to this.  I have no idea if the Clintons were involved in killing Epstein.  There were many other people who had a motive for seeing him gone, so there are plenty of people to point fingers at.  It’s just that the Clintons have a history of making people disappear who get in their way.

(As a side note, there was speculation that John Kennedy Jr. was going to run for senator from New York just before he died in a plane crash.  Hillary Clinton won that senate seat in 2000, which was her stepping stone towards the presidency.)

Losing Legitimacy

I saw someone post on Facebook that people should not be politicizing Epstein’s death.  We should be seeking justice for his victims.

But you basically have to politicize it because there is politics all over the thing. Epstein was likely part of the CIA or some other deep state element.  He had a lot of money, and it isn’t clear where it came from. He also had a lot of protection from powerful people at the top.

Epstein is dead, assuming that report is accurate.  The only way to bring any justice to his victims is to go after the other people who were involved.  It is hard to get anywhere without politicizing it.

The FBI is supposedly investigating it.  This is like Allen Dulles investigating the Kennedy assassination.  There is a better chance of O.J. Simpson revealing the real killer of his ex-wife.

Dulles was fired from the CIA by Kennedy.  He was likely one of the deep state players who arranged for Kennedy to be taken out.  When you get the actual criminal running the investigation, you know what kind of answer you will get.

But the downfall of Epstein is still important, aside from stopping his aggressions.  It is helping to delegitimize the government. When Epstein was reported dead, I think a majority of people turned into conspiracy theorists.  This one was just too obvious.

I have said in the past that the deep state probably did not want to do to Trump what was done to Kennedy.  I compared it to Darth Vader striking down Obi-Wan Kenobi in front of Luke Skywalker.

Although Epstein was about the opposite of Luke Skywalker, I think there is still something of an analogy here.  He was struck down in full public view.  It was likely done by very powerful people at the top who didn’t want their own crimes to be exposed.

This just adds to the true belief that there is heavy corruption and criminality at the highest levels of government.  The legitimacy of the state goes down another notch.

The tree has lost another branch and it is rotting more.  A little bit of the rot can now be seen on the outside.

A wild week in the financial markets just wrapped up.  Stocks were pummeled on Monday and then took a wild roller coaster ride the rest of the week, largely recovering the losses from Monday.

Gold surged past the $1,500 per mark.  The signs haven’t been this bullish for gold since its all-time peak back in 2011.  All of that could change, however, with a recession.

I think the most significant move this past week came in the bond market.  Interest rates, particularly on longer-term yields, fell quite dramatically.  The 10-year yield fell to around 1.6% before finishing the week at just over 1.7%.  The inverted yield curve continues, and the 20-year yield and 30-year yield are now very close to the short-term rates.

Sometimes falling rates are a sign of a healthy economy.  But in this case, I think it is the opposite.  We aren’t seeing low rates because of a plethora of savings.  It is due to market tampering by the Fed, and it is also due to investors locking in longer-term rates before the next recession hits.

Why would someone lock up their money for 10 years for 1.7% annual interest when they could lock up their money for just 3 months at 2% annual interest?  The reason is that they expect the short-term rates to fall well below that 1.7% in the future.

The lowest yields are in the 3-year and 5-year range.  This is not surprising.  If you thought a recession was coming next year, and the economy would be lackluster at best for a few years following that, then it would make sense to lock in a rate for the next 3 to 5 years.

This Isn’t the 1970s (Yet)

Interest rates do not always have to fall in a recession.  In the 1970s, when the Fed continued to print money, and there was a genuine fear of price inflation, rates rose to reflect the inflation premium.  If you were going to buy a bond and expected to lose 10% per year to inflation, then you would expect the bond to pay out higher than 10% per year.  It is important to note though that real (inflation-adjusted) interest rates can still be negative if that seems to be the best choice around.

The interest rates in Japan and parts of Western Europe are largely negative in nominal terms. However, this is just a reflection of how bad the markets are rigged there.  Most of these negative-yielding bonds are being bought up by the central banks.

In the U.S. today, there is not a lot of fear for significant price inflation. Therefore, when we do have a recession, U.S. government bonds will be seen as a safe haven.  Most likely, government bonds will be seen as a safe haven even over gold.  Rates will continue to fall.

I do expect high price inflation to eventually hit, but it will be after the Fed’s response to the next crisis.  It is safe to assume that the Fed will return to quantitative easing (digital money printing) when the next crisis hits.

An inverted yield curve generally occurs before the recession hits.  This is why it is such a great predictor of recessions. It is common for the yield curve to go back to normal before the recession actually hits.  At that point, interest rates will likely fall, again, assuming there is little fear of price inflation.  But short-term rates will then fall faster than long-term rates.

Refinancing

If you own real estate with a mortgage, you may have a chance to refinance in the somewhat near future.  Mortgage rates are really low now, but I think they will probably go lower.  If you are on the margin about refinancing, then it is probably best to wait.  If you already have a high rate (relatively speaking), then you may not want to wait and take the chance.  If you can go from a 5% rate to something under 4%, then it will make sense in a lot of cases.  Of course, you have to run your own numbers for your own personal situation.

I currently have a 30-year fixed rate mortgage that is just under 4%.  This is from 2010.  That was amazingly low to me at the time, but the current rates just about match this.  If I decide to refinance, it will be to a 15-year fixed rate mortgage, which is getting down near 3%.

It is not quite low enough for me right now to make it worth it, so I will wait to see if rates drop more.  If I can get a monthly mortgage payment within $100 of what I currently have, while knocking about 6 years off of my loan, then I will likely do it.

It is obviously quite difficult to make predictions with these markets.  The timing is even harder.  At this point, the mostly inverted yield curve is pointing to a recession in 2020.

Stocks are going to get pummeled.  I won’t be surprised if share prices get cut in half or more.

Gold could go either way.  I expect it to retreat a little in a recession, as people look for liquidity.  I expect it to eventually go much higher when the Fed starts creating new money again like crazy.

Bonds are likely going to go up even more, as interest rates fall.  The fall in longer-term rates may not last that long, so don’t procrastinate on refinancing if it is something that makes sense.  I expect short-term rates to go near zero again, and they are likely to stay there as long as the threat of high price inflation remains low.

I have pointed out several times that Trump is going to regret taking ownership over the U.S. economy.  By taking ownership, I mean that he has been touting the supposed booming economy on his watch.

Every time he takes credit for the booming economy, he further inherits responsibility when things go down.  If he is going to take credit on the way up, then he will take the blame on the way down.

I think Trump’s one hedge is the Federal Reserve.  He has been relentlessly attacking Jerome Powell, the man Trump appointed, for not pushing interest rates low enough.  If stocks crash and an economic recession begins, I expect Trump to blame Powell and the Fed.

The Fed will actually be largely to blame when the economy turns south, but not in the sense that Trump will point out.  The Fed had an easy monetary policy that was unprecedented from 2008 to 2014. It nearly quintupled the adjusted monetary base and held its target rate near zero for about a decade.  This all served to misallocate resources, and the next recession will be a correction of this malinvestment.

The problem isn’t that the Fed has been too tight with its monetary policy, as Trump indicates. The problem is that the Fed was too loose for too long since the financial crisis of 2008.

If we want to go hardcore libertarian, the true root of the problem is that we should not have an entity that has a legal monopoly over the money supply and that can control certain interest rates for hundreds of millions of people.

To make things worse for Trump, he has been continually pushing these tariffs on China. There is no question – or there shouldn’t be – that the tariffs are harmful to Americans consumers. They reduce trade and make things more expensive than they otherwise would have been.

But I don’t think the tariffs will actually cause a recession.  They will cause our living standards to be slightly lower than they would have been, but the tariffs are not going to turn a boom to bust.  That is the artificial business cycle, which is primarily driven by Fed policy.

The problem for Trump is that the next recession will likely coincide with his tariffs.  It will be easy for the media to blame Trump for the recession.  And Trump will not have a good response because he has been touting the economy under his presidency.  He was warning about bubbles during his presidential campaign, but all that talk stopped as soon as he became president.  Now we have a bigger bubble than 3 years ago when he was saying it was a bubble.

Republicans Will Look Foolish

While my comments in the past have focused on Trump, I have somewhat overlooked the impact this will have on Republicans who have been promoting the Trump economy.  They are going to be embarrassed greatly, assuming the recession hits by the end of 2020.

Given the current inversion of the yield curve, I don’t think we are going to avoid a recession until 2021.  But if this does happen, then the only way Trump avoids major blame is if he loses the presidency and is already out of office.

I don’t care about Trump and all of the Republicans who are going to look completely foolish when this economy implodes.  They actually deserve to be ridiculed for the ridiculous remarks they are making now.  The one thing I fear is that some people will see the next recession as a failure of the free market.

Of course, Trump is not an advocate of the free market.  He isn’t a socialist either, but he should not be the face of free market capitalism.  He has done a few decent things such as reducing federal regulations and cutting some taxes, particularly the corporate income tax.  But other than that, Trump has been a disaster.  The annual deficit is near $1 trillion in his “booming” economy.  Spending is out of control, while he imposes tariffs that American consumers pay for.  And when it comes to the Fed, Trump just pushes looser money and lower interest rates.

This is why it is important for libertarians to speak out loud and clear that Trump is not a free market guy.  The supposed booming economy is propped up by the Fed’s previous easy money and its willingness to go even easier in the future.

I saw a segment on the Fox News morning show recently, and they had on Stuart Varney as a guest. He was boasting about the great Trump economy while the Dow futures were massively down.  At the end, he touted gold and Bitcoin, and he even touted the fact that interest rates are low and that people will be able to refinance.  It was one giant contradiction in an attempt to make Trump look good.

Varney is supposed to be a financial guy, yet he is contradicting himself from sentence to sentence.  He apparently doesn’t understand that the low long-term interest rates are not a good sign of things to come, especially when some of these longer-term rates are lower than short-term rates.

He also apparently doesn’t understand that we live in a world with YouTube.  There are going to be montages of these Republican talking heads a couple of years from now saying how wonderful the Trump economy is.

While they will deserve to look like fools, we cannot allow the left to cease the moment. Libertarians must be relentless in pointing out that big government and the Fed has caused the economic problems that we face.  People will be looking for answers, and we need to provide them.

I struggled through two more debates this past week.  In total, I watched about 5 hours of CNN in two nights, which exceeds my annual quota.

There were a few good questions from the moderators, but nothing great.  The first night was a little interesting when they were discussing healthcare and a few of the “moderate” Democrats spoke up and said that they don’t like the idea of pulling health insurance away from tens of millions of Americans who may be satisfied with what they already have.

They still insisted that healthcare is a right that should be guaranteed.  I am not sure if this means just for Americans or for the human race.  Could you imagine someone 200 years ago saying that healthcare is a right?  A right provided by whom?

Maybe starving people in Africa should just say they have a right to unlimited food.  Will that make food appear on the table?

Elizabeth Warren and Bernie Sanders are considered in the top tier of the candidates, and they are also considered to be the most far left of the major candidates.  When they were slightly challenged on their plans for a total government takeover of healthcare/ medicine, they accused others of using “Republican talking points”.

If I had been one of the other candidates, I would have said the following: “You can say it is a Republican talking point, but if that’s the case, then you better learn how to respond properly to it.  If you are the nominee and are challenged by Trump on these issues, is your response always going to be that it is a Republican talking point? If you can’t respond to a supposed Republican talking point, then how will you beat Trump in a general election?”

The most interesting characters are Marianne Williamson, Andrew Yang, and Tulsi Gabbard. Williamson is especially horrible regarding reparations for slavery.  Yang’s economics are bad and his solution for a government-guaranteed income is even worse.  Gabbard is still bad on most domestic issues and doesn’t understand economics, although she at least acknowledges costs at times.

Still, despite the many flaws of these three individuals, there is something a little refreshing about them.  They are a little different.  They actually seem to be honest and genuine people.  Maybe that is what makes them different.  I could be wrong about their genuineness, but I am at least giving them the benefit of the doubt.

I won’t go through every candidate, as there are just too many.  While I like having some unique voices, I am looking forward to future debates that will be consolidated with stricter qualifying guidelines.

Senators Amy Klobuchar and Kirsten Gillibrand are just dull and offer nothing new.  Do they really think they will gain any traction in this large field just by repeating Democratic Party talking points? For Gillibrand, maybe she is afraid to be too aggressive because she is a self-described white woman of privilege.

Joe Biden (“Sleepy Joe” according to Trump) held up a little better in his second debate.  He was relentlessly attacked, but there were no major blows to him that stuck.  If he were to become president, he really would be a continuation of Obama.

And speaking of Obama, it is interesting how many of the candidates are now implicitly attacking Obama.  Of course, they are attacking him for not having been leftist enough with his domestic agenda.

Back when Obamacare was being debated before it passed, libertarians and some Republicans were warning that this was just a stepping stone to fully nationalized healthcare. It is quite obvious this was the intent of the left with Obamacare.  Now they are attacking it because it is insufficient.  But it is actually worse that insufficient.  It is detrimental.  It is one of the many reasons that health insurance premiums are so high, which makes it easier for the far left to call for a total government takeover of healthcare.

Kamala Harris is still, I think, the scariest candidate.  She is very authoritarian.  She said that she wants to tax companies who don’t give equal pay.  How would this work and who would decide what is equal pay for equal work?  If anything like this ever passed, it would greatly damage the market system.  It would be a major blow to economic liberty.

Harris would be horrible in almost every aspect.  She is a war hawk.  She is an economic fascist.  She is anti civil liberties except when it serves her own political purposes. She is basically Hillary Clinton except perhaps more articulate.  I don’t know if others will find her more likeable or not.

It was a great moment when Tulsi attacked Harris for locking up marijuana users and keeping people locked up for cheap labor.  Tulsi took her down a notch, which was needed.  Harris is the most dangerous and needs to be taken down.

Regarding Bernie Sanders, I am less fearful.  His economics is horrible, but I am not sure how much he would get passed into legislation as president.  He is actually decent when he speaks on foreign policy, but he never emphasizes it.  He will only talk about it when asked directly.  Therefore, we shouldn’t trust him on it at all.  And let’s remember that Bernie campaigned for Hillary the war hawk in 2016 in the general election.

Speaking of foreign policy, there was barely any time spent on it.  CNN was too busy focusing on healthcare and cultural issues where the president would have very little impact.  Foreign policy is the one area that the president can have an immediate and significant impact.  In the second debate night, there was a total of about 6 minutes spent answering foreign policy questions out of a debate over 2 and a half hours long.

Even aside from foreign policy, CNN really didn’t ask many of the important questions.  There is almost no talk of the deficit, which continues to balloon out of control, even during supposed prosperous times. The candidates are busy proposing all of these new programs when the deficits are already running around $1 trillion per year.  And more taxes on the wealthy aren’t going to cover that gap.

Tulsi’s Chances

Tulsi Gabbard is certainly the most interesting and unique candidate.  I would give her a “C” grade for her performance in her second debate.  She was strong in going after Kamala Harris on civil liberties.  And she was pretty strong when discussing foreign policy, but she didn’t do it enough.

The problem is that foreign policy is her signature issue, and she needs to stress it even more.  She didn’t say anything about it in her opening statement, which was a major disappointment. Her closing statement was a little better, but still not really strong.

She needs to take virtually every issue back to foreign policy.  Even when discussing healthcare, she needs to say that the other candidates have no plan to actually pay for healthcare.  If we want to be prosperous at home, then we need to start by saving hundreds of billions of dollars every year by ending these senseless wars and bringing the troops home.

Tulsi really needs to reach out to libertarians, as Andrew Yang has attempted to do.  She needs to hit the libertarian talk circuit.  She appears on Tucker Carlson’s program on Fox News, which is good, but his audience is quite mixed. Tulsi has previously been on Joe Rogan’s podcast.

Tulsi needs to do so much more.  She needs to go on Dave Smith’s podcast.  She needs to go on Tom Woods’ podcast.  She needs to do an interview with Lew Rockwell.  She needs to make frequent appearances on Ron Paul’s Liberty Report.  She needs to talk to the libertarian world and specifically address them. I would imagine most of the major libertarian figures would interview her if given the chance.

Tulsi should address libertarians upfront saying that she understands there are differences between her and libertarians in regard to some domestic issues.  However, we should all agree that we need a non-interventionist foreign policy that will put an end to these wars and bring the troops home.  That will be a significant benefit regardless of whether the saved money is used to pay down the deficit, reduce taxes, or spend it on domestic welfare.

I think many libertarians would respect this message and might even throw a few dollars towards her campaign just to see her keep going to make it interesting.  She did recently co-sponsor a bill to audit the Fed, so maybe she will start reaching out more to libertarians.

I don’t hold out much hope of Tulsi actually winning.  The establishment media attacks against her will only get worse, and the Democrat voters tend to be more trusting of the establishment media.

But if we can keep her going in the debates, then it will at least spice things up and keep the topic alive.  I think people like Bernie and Elizabeth Warren will feel more compelled to speak against war with Tulsi in the picture.

It is reported by Gabbard’s campaign that she has already exceeded the 130,000-donor mark needed to qualify for the next debate, but it is not clear whether she will qualify based on the qualifying polls.

Let’s hope Tulsi is in the next debate.  Libertarians don’t have to fully support her, but we can certainly make it known that we support her on certain issues, particularly when it comes to ending wars.