Harry Browne passed away in 2006.  It is 14 years later that we are dealing with the coronavirus, along with the economic and financial impacts.

Obviously, Harry Browne had nothing to say on the coronavirus, as it is a relatively new thing today.  But when you are making financial decisions, it is best to have a firm base of principles in place that do not change with the current events.

Personally, I think the reactions to the virus are way over-blown.  But it doesn’t matter whether you think the virus is a great threat or not.  What matters is everyone else’s reaction.

I keep saying that I am not paranoid about the virus itself.  I am paranoid about the reactions to the virus.

I already thought the stock market in the U.S. was one giant bubble.  I have been strongly warning about that.  But even I am surprised at just how fast and furious the drop in stock prices has been.  It would have been hard for anyone to predict this virus and the major changes that have taken place in such a short period of time.

But let’s look at this situation (from a financial aspect) with a firm set of principles.  The main principle is that this planet is made up of billions of people, and people act.  We cannot predict how each individual human will act, and we can’t predict the cumulative effects of these actions.

This is why Harry Browne devised his permanent portfolio concept.  It is designed to weather any storm.  Of course, if the planet gets struck with a giant asteroid and blows up the planet, your portfolio won’t survive, but neither will anything else.

The permanent portfolio takes into account something like the coronavirus.  It doesn’t make toilet paper appear at the store, but it serves to protect your financial investments.

Even the permanent portfolio has been down the last few weeks.  The 25% stock portion has done really poorly.  The 25% bond portion has done well.  The 25% gold portion has been extremely volatile. The 25% cash portion has added some stability, which is what it is designed to do.

You might be down 5 or 6 percent over the last few weeks if you are following something similar to the permanent portfolio.  But it is better than being down 25% like those who were “all-in” on stocks.

Building a Bulletproof Portfolio for Protection

In his book, Fail-Safe Investing, Browne lays out several rules for financial safety.  For Rule #11, he explains the permanent portfolio and its importance for protecting your investments.

He states, “The portfolio should assure that your wealth will survive any event – including events that would be devastating to any one investment.  In other words, this portfolio should protect you no matter what the future brings.”

He lists three requirements for building a bulletproof portfolio.  They are safety, stability, and simplicity.

He goes on to cover the four investments that cover all the possibilities.  You should invest to protect your investments from four economic categories: prosperity, inflation, tight money or recession, and deflation.

As I’ve explained before, his phrase of “tight money or recession” should really just be looked at as recession in today’s world.  The Fed can be loose with its money while we have a recession.  The tight money is really more with consumer spending.  As we have learned from the last decade, you can have minimal consumer price inflation while the Fed is expanding its balance sheet.

In order to protect against any of the economic categories, he recommended four investments split up equally (25% each).  They are stocks, long-term government bonds, gold, and cash (or cash equivalents).

At the conclusion of this rule, he states, “The test of a Permanent Portfolio is whether it provides peace of mind.  A Permanent Portfolio should let you watch the evening news or read investment publications in total serenity.  No actual or threatened event should trouble you, because you’ll know that your portfolio is protected against it.”

Are you watching news of the coronavirus and wondering what you should do with your financial investments?  Should you buy on the dips?  Should you sell on the up days because the market will fall much farther?  Should you be buying gold because the Fed will start creating money out of thin air like crazy?  Is it too late to rush into government bonds?

This is what the permanent portfolio is for.  If you want to speculate, then take the money you want to use for speculation and set it aside for this purpose.  Speculation money should be done with money that you can afford to lose.

Your home base should be the permanent portfolio.  This should be called the sleep-at-night portfolio.  It can’t guarantee you happiness in life. It can’t even guarantee you financial success.  But it can give you a high degree of assurance that your investment portfolio can survive no matter what the current economic environment brings.  That includes the coronavirus.

I believe the recession is here.  You can blame the coronavirus, oil, or anything else, but the asset bubble is deflating.  I have said that my theme for 2020 would be the great stock bubble.  Now the stock bubble is slightly less big than it was a few weeks ago.

I have been warning about troubled times ahead for a while, so it almost doesn’t seem real now that it is happening.

My portfolio has taken a hit over the last couple of weeks, but nothing compared to what most people are experiencing.  My retirement account is down maybe 5%.

I had been planning to buy into at least one bear market mutual fund or something similar. I wasn’t going to bet the farm on it, but I thought it would be a good idea to throw a little money at what I saw as a massive bubble.

I hesitated because I actually thought the Dow had a decent chance of hitting 30,000.  That didn’t come to fruition, as it came just short.  I don’t think the Dow will be seeing 30,000 for quite a while.

I am still debating whether to get into a bear market fund.  Maybe I will lightly dip my toe into something.  That may sound crazy to some people.  I have been hearing many people say that they are buying on the dip (or dips).  I saw one person compare this to trying to catch a falling knife.

I still think stocks are a bubble.  If they fall another 50% over the next year, then a bear market fund would serve me well. Of course, I can’t be certain this will happen.  Maybe if things start to turnaround with the coronavirus hysteria, then stocks will get another pop up.

As I’ve stated before, I think the coronavirus is only a small piece of this puzzle.  It was just the last straw that broke the camel’s back.  It is obviously going to impact economic activity, especially with our global economy. But this is on top of an economic slowdown that I was predicting anyway.  The yield curve didn’t invert in 2019 because of expectations of a virus.  The Fed wasn’t already lowering its target rate last year in anticipation of a virus.

Speaking of the Fed, it already had an emergency meeting to lower its target rate by 50 basis points. It may lower it again by its next meeting.  It may lower it another 50 basis points, or even 75 basis points.  We will be near zero interest rates before we even know that we are officially in a recession.

I also expect a lot more quantitative easing (QE), also known as digital money printing. For this reason, I am still bullish on gold in the long term.

The Political Angle

The stock market is tanking and the world is in panic.  Meanwhile, the Democrats are about to nominate someone who is losing his marbles.

I don’t say this to be mean.  It’s just that it is kind of a relevant issue if the next president isn’t all there.  It will make it quite convenient for the establishment to dictate policy.  Or they may just eventually admit he is not all there and replace him with someone else.  Queen Hillary anyone?

Trump would absolutely destroy Biden in a debate.  I don’t know if it will be really fun or if I’ll actually just start feeling bad for the guy.  But Trump has his own problems.  He took ownership of this economy, particularly the boom in stocks. He can now blame the virus or the Fed or whoever, but he will ultimately take the blame.  He is right to blame the Fed, but he does so for all the wrong reasons.

Trump tweeted the other day that the lower oil prices are good for consumers.  I actually agree with him on this economic point. But where was that rationale when he was slapping tariffs on China?  If lower prices are good for consumers, then he should have eliminated tariffs on China and everyone else.

Now Trump is talking about a payroll tax cut.  There was even a suggestion that the payroll tax be eliminated until after the election.  I am all for this. The federal government is headed into bankruptcy or default anyway, so I might as well take the extra, mostly useless, money now.  The government (i.e., politicians) has made more promises than can be kept. A payroll tax cut may just move up the day of reckoning.

No matter who is president in 2021, it will be a dangerous time.  The government is going to further encroach on our liberty. It is important for libertarians to point out that this is not the result of the free market.  It is government spending, regulation, and central bank manipulation that caused these problems.

With Trump on the defensive about the economy, and with Biden being incoherent, I hope that Jacob Hornberger or some other libertarian is prepared to teach America some economics.  While war is the most important issue, I think this is a great time for a libertarian to sell a populist message of more economic freedom.  I hope Hornberger doesn’t waste his time on an issue like immigration while largely ignoring this major opportunity when middle class America is struggling.

Be Prepared

You should be prepared for a hard recession that may last for a while.  The most important thing is to do your best to keep your income source secure.  For most people, this is a job.

If you have investments, now is not the time to go fishing for bargains in the stock market. I still recommend a permanent portfolio.  If anything, I am lighter than 25% stocks right now.

It is important to pay down any debt outside of your mortgage.  You don’t want debt disrupting your cash flow every month.

And speaking of mortgages, mortgage rates are down.  I have no idea if they will go down more.  If you can refinance into a better situation, you should take advantage.  It has to make sense though.  You have to factor in closing costs, the amount left on your mortgage, the length of the loan, and how much lower of an interest rate you can get.

Aside from defensive strategies, I like to remind people that recessions can also be opportunities.  As Warren Buffett said, you should be fearful when others are greedy and greedy when others are fearful.  Sometimes there are unique opportunities in a recession where other people are afraid to spend/ invest any money.  This is another reason that cash is king in a recession.

I would like to discuss the similarities between Rand Paul and Tulsi Gabbard.  They go beyond just running for president.

First, I’d like to preface this by saying that I like both of them.  Rand Paul has been quite good on many issues since folding up his presidential campaign in 2016.  I obviously much prefer the policies advocated by Ron Paul (his father), but Rand is definitely the best senator there is right now.  I know I’m not setting the bar high with that, but he really has been pretty good on most issues.

Tulsi Gabbard brought some extra enjoyment to the Democratic debates that she was able to participate in.  She focused heavily on U.S. foreign policy, which has largely been ignored.  And her discussions of foreign policy were mostly good in criticizing U.S. wars and interventions.

Even though the rest of this post will largely be criticisms of these two, I do respect them and hold out hope that they can do even better in the future.

Rand is a Republican, and Tulsi is a Democrat.  But they both are different from the typical politician in their respective parties.  They both attempted a run at the presidency, and both of them failed quite miserably.  They failed in getting any significant support, and they failed in inspiring any kind of movement.

This is where Ron Paul differs.  Ron Paul did inspire a movement.  More than twelve years later (from his 2007/ 2008 campaign), there are hundreds of thousands of principled libertarians in existence largely because of Ron Paul’s presidential campaign.

Aside from this, Ron Paul even did much better electorally.  He received a significant number of votes in the primaries, along with many delegates.  It wasn’t his place and time to win the nomination (or presidency), but he did quite well considering he staked out a radical position as compared to the other major candidates.  Actually, this is the reason he did quite well.  It wasn’t because of his speaking ability or his charm, although his genuineness did help.

Rand and Tulsi failed because they were afraid to go too radical.  This is hard to believe because they were already being ostracized by the establishments of their own party.  Tulsi was slightly more bold and radical than Rand, but she still fell far short.

Going All In

The problem is that they hold back because they want to be respected.  But as soon as they gain any traction, there will be no respect coming from the corporate media and the swamp that is Washington DC.

Tulsi was called a Russian asset by none other than Hillary Clinton.  The establishment media was calling her an Assad apologist.

At least Tulsi had the guts to stand against her party when it came to the impeachment of Trump. She didn’t really defend Trump, but she didn’t vote in favor of his impeachment.  I think she saw it as a deep state coup, but she didn’t come out and directly say that.

Anyone who gains any traction who advocates a more peaceful foreign policy is now labeled as some kind of Russian asset.  Now there are accusations (made up stories) about the Russians trying to help Bernie Sanders.  But Bernie is extremely weak.  He doesn’t want to call it a hoax because this would imply that it was also a hoax against Trump.  Tulsi could have been stronger on this issue, but she wasn’t as weak as Bernie.

Tulsi was fairly consistent in speaking against U.S. regime change wars.  She wasn’t as consistent as Ron Paul.  Even when she was on Ron Paul’s show (The Liberty Report) recently, she was not as hardcore as I would have liked. And this was speaking to Ron Paul’s audience.  When she talked about the draft, she did not sound principled at all.  It took Ron Paul to point out the moral flaws (to put it mildly) with the military draft.

Tulsi should have hammered on the foreign policy issue at every moment.  Instead, she tried to sound too politically correct. She tried to say slogans that may have sounded nice but were mostly ineffective.  Whenever she was asked about another issue, she should have responded quickly and then used the rest of her time on foreign policy. When asked about domestic issues, she should have said that we can save money by stopping all the wars. She should have been a one hit wonder.

Rand Paul was even weaker in his presidential campaign.  The first question on the first debate was about supporting the eventual nominee.  When Trump was the only one who didn’t raise his hand to promise supporting the eventual nominee, Rand chimed in right away going after Trump for this.  It is somewhat ironic given that his father never supported the eventual nominee after his campaigns in 2008 and 2012.

Rand was an instant loser.  His father’s supporters didn’t see the same thing in Rand as they saw in Ron, and rightly so.  I don’t even think Rand had to be completely hardcore on foreign policy, although that would have been nice.  He really should have adopted a populist position similar to Trump.  He should have hammered away at how the middle class is getting a bad deal in America.  Differing from Trump, he should have said that the answer is to drastically reduce the size and scope of government so that the living standards of middle class America will go up to where they should be.

When I watched Ron Paul in the Republican debates, I never got really frustrated.  There were a few times I wished he had responded in a different way to a question.  But overall, he answered questions with a pro liberty response.  He also hammered away at his key issues, particularly foreign policy and monetary policy.

Rand and Tulsi should learn a lesson from Ron Paul.  The establishment is going to hate you no matter what.  You might as well go down telling the truth and not being shy about it.

The establishment has rallied around Joe Biden.  But don’t be fooled.  It isn’t because he has the best chance of beating Donald Trump.  It is because he has the best chance of getting rid of Bernie Sanders.

That is why Buttigieg and Klobuchar dropped out before Super Tuesday.  Elizabeth Warren stayed in so that votes did not go to Bernie.

I think it actually got to a point where the establishment preferred Trump to Sanders.  They both occasionally tell the truth about foreign policy.  But at least they know Trump at this point.  If Bernie becomes president, they can probably control him, but they don’t know for sure.

I was surprised that Biden did as well as he did on Tuesday.  It isn’t out of the question that he could get a majority of delegates going into the convention.  But if Biden has just one more delegate over Bernie, that will be enough of an excuse to deny Bernie the nomination.

I was starting to look forward to watching the establishment squirm with the prospects of a Trump vs. Sanders race.  Instead, we may get a different form of entertainment.  I was watching a montage video of stupid things Biden has said over the years and it made me laugh hard.

Up until now, Biden has been on stage with at least 6 other candidates.  He typically doesn’t have to talk for more than 15 minutes in a debate.  When he has to go head to head with Trump in a two-hour debate where Biden has to speak for close to an hour, the bloopers will just be flowing out.

You’d think the establishment could have found someone a little less senile.  They also could have found someone a little less creepy.  Trump can just run campaign ads showing Biden massaging women in public and sniffing their hair.

Trump is a master marketer, but I think he should drop the nickname of Sleepy Joe.  He should just go with Creepy Joe.  For all his faults, Trump doesn’t really come across as creepy.  He can stick this label on Biden.

And let’s also not forget that Biden is one of the key players in the Ukraine situation that was used as an excuse for impeaching Trump.  Biden is on video saying that he threatened to withhold money from Ukraine unless the prosecutor investigating his son’s employer was fired.

This race isn’t over yet.  Bernie could still make a run.  It is also possible that they may get rid of Biden at the convention.  Maybe Hillary will step in to save the day.

There are still a lot of possibilities at this point.  Stay tuned.

I was expecting the Fed to lower its target rate at the next meeting in mid-March.  Instead, we got a surprise with a 50 basis point cut on Tuesday morning.

The Fed is now only 100 basis points (1%) away from its all-time low for the federal funds rate. It can’t go beyond that unless it goes negative.

With the surprise news, yields fell once more.  It is no surprise that short-term yields plummeted.  But the 10-year yield briefly fell below the 1% barrier for the first time ever.

Gold went up on the news, which makes some sense.  The lower interest rates are correlated with a looser monetary policy.

I don’t know if the Fed was expecting to save the stock market, but stocks ended up tanking again, giving up much of the massive gains from Monday.  This just shows that the Fed can only do so much.  If anything, this move may have just spooked investors more.  Now we know the Fed is really worried about the situation.

I continue to contend that this is not just about the coronavirus.  That may have been the trigger, but the gun was already loaded.  Stocks were in a massive bubble, and they continue to be in a massive bubble.

I am a part of some online groups that discuss financial independence.  There are many people asking if they should buy now while stocks are on sale.  My answer continues to be a firm “no”.  They are on sale compared to two weeks ago, but they are still in a major bubble.

I can’t be certain, but I think we are in a recession now.  The bond market is certainly telling us that.  And if the Fed is cutting 50 basis points in an emergency meeting, I think Fed officials see it that way too.

Hopefully most people reading this are not heavy in stocks right now.  If you are, I would recommend diversifying now.

It took many years to blow the bubble up this much.  It won’t take years to deflate it.

I will make some more political commentary after Super Tuesday is over. But I just wanted to comment briefly on the political situation because both Pete Buttigieg and Amy Klobuchar have ended their bids for the presidency.

It looks like both candidates are going to endorse Joe Biden. It makes you wonder if the powers-that-be had a say in this.

Both of these candidates had decent showings in Iowa. But after Biden’s big win in South Carolina, it looks like he may be back in the seat as the establishment favorite.

If I were Buttigieg or Klobuchar – and thankfully I’m not – I don’t think I would have given up right before Super Tuesday. You spend all of that time, effort, and money, so one would think that you would let it play out on the biggest primary day.

This is why I suspect that they were coerced into it, or at least highly encouraged. Politics is a dirty game. The powers-that-be may have said that good things will come their way if they drop out now. Maybe there are promises of vice presidential slots or cabinet positions. In the case of Buttigieg, who is young, they may have said to come back in 4 or 8 years and he will receive the establishment support.

It’s possible they were threatened too, but maybe it didn’t need to come to that. I think Buttigieg and Klobuchar got the message without anything explicit having to be said.

The goal for the establishment is to get rid of Bernie Sanders. They probably don’t mind keeping Elizabeth Warren around for now because some of her supporters could possibly go to Bernie.

It is basically down to Biden and Bloomberg for the establishment slot to face off against Bernie. Things will likely be more clear in a couple of days.

I am surprised the establishment is siding with Biden as their best hope. The guy is a train wreck. He can’t put together two coherent sentences. If he has to go against Trump in a two-hour long debate, it is going to be entertainment like you wouldn’t believe.

Maybe the plan is to get Biden to match, or close to match, the delegate count with Sanders going into the convention. Then they will throw him under the bus and bring in Hillary to save the day. I can’t completely discount that possibility now.

I’ll have more on Wednesday.

My paranoia is about the paranoia.  I am not too worried about the coronavirus itself.  I am worried about panic from the coronavirus, including government reactions to it in order to appear to be doing something.  This is the type of thing where governments can get away with tyranny to a greater degree than normal.

Stocks fell really hard this week.  Gold went up at first, but then fell really hard.  Bonds did well, as interest rates went down.  The 10-year yield hit an all-time low.  There are also strong bets that the Fed will lower its target rate at the next meeting in March.  It is almost certain we will see a 25 basis point (.25%) reduction, but it could be 50 basis points.

The almost-universal opinion is that stocks fell hard because of the coronavirus.  It makes sense to a certain degree. The Chinese are a major supplier of goods, so there will be some disruptions in business.

Nationalists will make the argument that this is a good example of why we (Americans) need more independence and less reliance (trade) with foreign nations.

I do not agree with this argument for several reasons.  First, supply disruptions could just as easily happen within a country.  If iPhones were all produced in Los Angeles, then an earthquake could shut down production.  If they were produced in Miami, a hurricane could disrupt production for a while.  There could be a pandemic in any American city.  One could think of many examples.

Second, the free market will take care of this issue if it is allowed to function.  If supply chains shut down for long enough in China, then businesses aren’t just going to sit there and throw up their collective hands and do nothing.  They will find other suppliers.  They will likely have to pay a little more than what they had been paying, but things will adjust as long as prices are allowed to function.

Even as an advocate of the free market, it surprises me how fast businesses and industries can make major adjustments.  The profit motive (or the motive of limiting losses) is powerful.

I do want to explore just how much of this dive in stocks is due to the coronavirus.  The Dow sank over 3,500 points in one week. All of the major indexes experienced a correction in the matter of a week, meaning they lost at least 10%. This is quite extraordinary.

So here is my question.

What if the Coronavirus Goes Away in the Next Few Weeks?

Spring is coming soon in the northern hemisphere.  I am not sure why such a big deal is being made of this particular virus. It is contended that the flu kills far more people annually.

I think the flu statistics are not quite accurate.  A lot of the deaths attributed to the flu are for people who were already unhealthy.  They are people who had compromised immune systems.  We don’t know how many of them would have died in a short time frame without the flu.

The coronavirus does not seem to be much different.  They are citing an approximate 2% death rate, but we don’t know how many cases have gone unreported.  It seems that most of the deaths are with people who already had health issues.  Admittedly, it is hard to say if the Chinese government is overstating or understating the problem.

Anyway, there is a decent chance that the virus will slow down and mostly go away over the next couple of months.  Maybe it will be even sooner.  I really don’t know for sure, and I don’t think anyone else does either. That uncertainty has rattled fear into people, which includes investors.

But let’s just say, hypothetically, that the virus mostly goes away over the next several weeks. Who thinks that stocks are going to gain back everything that was just lost this past week?  Is the Dow going to be going to near 30,000 again in a short amount of time?

I know my answer to this question.  I don’t think stocks are going to recover any time soon.  I see this as the beginning of a recession.  Everyone can blame a virus all they want, but it won’t change the reality.  The bond market is sending a strong signal of a recession.  The stock market just finally caught up with the bond market a little this past week.

I have said that my theme for 2020 will be about the massive stock market bubble.  It is now a little less of a bubble than it was a week ago.

I have been reading some forums where, as typical, you get some people saying that stocks just went on sale.  In other words, this is an opportunity to buy lower than it was the previous week.

To be sure, I would rather buy now than have bought a week ago.  But it is crazy to think that now is a good time to buy stocks. We will see bouncing around and high volatility, so there is potential money to be made in day trading. But these people are not talking about day trading.

Stocks could easily go down 50% from here.  They could go down 70%.  We probably aren’t going to continue to see drops of over 10% on a weekly basis, but we could easily see massive drops over the course of several months. It is going to take a lot less time to take the air out of the bubble than it did to inflate the bubble.

I am sticking with the permanent portfolio as a core.  Even that did poorly this past week, but it certainly wasn’t as painful as being heavy in stocks.

Aside from the permanent portfolio, I think it is good to do what is almost always wise in a recession where there is little concern for imminent price inflation.  It is best to save in cash and bonds.  It is best to pay down debt if that is possible.

This is not the end of the fall in stocks.  I think the coronavirus is only one piece of the puzzle.  That was a trigger event, but I don’t think it is the main event.  The bond market is telling us this is a recession.

Happy Birthday to Carol Paul, the wife of Ron Paul. She is celebrating her 21st birthday. I wonder if Ron will take her out to the bars for a drink.

Carol Paul was born on February 29, 1936. Since February 29 only comes around every 4 years, this is her 21st birthday.

I am thankful for Carol Paul and all of her support to her husband over the years. I am glad she agreed to him running for a congressional seat. It gave Ron Paul his platform to run for president on the Republican ticket in 2008 and 2012, which led to hundreds of thousands of people becoming principled libertarians.

Carol would have been a wonderful First Lady, but for her sake, I am glad Ron did not become president. It really is a swamp. It is great he was able to use his campaigns as an educational platform.

Happy Birthday Carol Paul.

Stocks have taken a beating so far this week.  In the first two days of the trading week, the Dow lost about 2,000 points.

Luckily for Bernie Sanders, the coronavirus is taking most of the blame.  I have seen suggestions of the market pricing in a possible Sanders presidency, but most of the corporate media are blaming the virus more at this point.

Of course, there is almost always an excuse for stocks going down.  They call it a sell-off, but this isn’t quite accurate.  There are an equal number of shares bought and sold.  It’s just that the price of most stocks is lower.  Sellers are willing to sell for a lower price and buyers are less willing to buy at the old higher price.

I have no idea if this coronavirus has legs.  It may just be like any other version of the flu, except this has a special name and is getting special attention.  We don’t even know for sure if the death rate is higher than the regular flu.  There may be a lot of people who have contracted the virus that did not report it.

I suspect it will die out, especially as warmer weather hits, but I can’t be certain.  It has certainly impacted China to a great degree.  Maybe the action is in the reaction, as the Chinese government has effectively shut down business in a major city.

So I don’t think the virus is irrelevant, even when it comes to the economy.  At the same time, we don’t really know if the plunge in stocks was due primarily to the virus.  After all, stocks had been on a ridiculous run up.

The bigger question is whether this is a blip, or if it is the beginning of a recession.

Politics

I still expect Trump to blame falling stocks (should it continue) on the possibility of a Sanders presidency.

I am surprised the establishment, particularly the Democratic Party establishment, has not tried to pin blame on Bernie yet.  Maybe they figure that the Democrat voters cannot figure out that the market prices these things in, even if it is pointed out to them.  The Democrat voters obviously aren’t very smart when it comes to economics, so they may not be wrong on this point.

If stocks keep going down, Trump will have trouble on this one.  He has taken ownership of this economy, particularly the boom in stocks.  If he is going to take credit for the boom, he will have to take the blame for the bust, even though it is more a matter of previous Federal Reserve policy.

Trump will try to blame Jerome Powell. This isn’t altogether wrong, but it is for the wrong reasons.  Trump will say that he should have never raised interest rates.  The problem is the relatively easy money and low interest rates that took place for over a decade after the fall of 2008. The Fed did stop expanding its balance sheet in late 2014, but it still maintained ultra-low rates and has given an implicit guarantee that it will step in as needed at any time.

Trump will also try to blame Sanders, assuming he stays on track for the nomination.  This won’t be a tough sell to his base, but it will be a tough sell to most everyone else.

Stocks and Bonds

Long-term yields are hitting all-time lows.  The 10-year yield is now well below 1.5%.  The 30-year yield is below 2%.  The yield curve is once again inverted if you compare the 10-year yield to the 3-month yield.  It had already inverted in 2019.  The bond market is sending a strong signal for a recession.

Yields were already down before stocks plummeted this week.  There is a disconnect between stocks and bonds.  I would rather bet with the bond market, which says there is major trouble ahead.

When stocks fall, long-term yields go down.  But when stocks go up, yields have not been going up as much, if at all. This has been the pattern lately. Something is not right about this, and I am not betting on a spike in yields in the near future.  I think it will be stocks that will go down, and go down hard.  It is just a question of when, and whether this was the beginning.

Since there is not much fear of imminent significant price inflation, U.S. government bonds are seen as a safe haven.  When stocks fall, investors lock in long-term yields.

If you are considering refinancing your mortgage, I don’t know whether to tell you to do it now or wait for even lower rates.  I think it depends on your situation.  If you have a 4% rate and can reduce it to 3.25%, maybe it is better to wait, unless your lender is willing to do it for minimal closing costs.  If you have a 5% rate and can drop it to 3.25%, it is probably better to be safe and lock it in now.

Gold and Bitcoin

I like to see how the price of other assets react when stocks tumble as they just did. Gold went up like a rocket on Monday, but then it took a hard fall on Tuesday.

This tells me that Monday’s fall in stocks may really have been partially due to the fears of the virus.  Tuesday tells a different story.  Maybe stock prices were falling on Tuesday because of recession fears, as gold tends to perform poorly at the beginning of a recession.

Meanwhile, Bitcoin has sunk quite a bit this week, but I’m not sure that means anything.  It has been extremely volatile as usual. It had gotten back above $10,000 per bitcoin, but has since fallen.  I have no idea how Bitcoin will do in a recession, but I tend to think it will go down in terms of dollars.

Cash (and long-term government bonds) is still king in a recession.  People want money.  Most assets fall in price.

I think this week is a coming preview of the year ahead.

A couple of weeks ago, I wrote an article on the rise of Bernie Sanders. It was printed on the Libertarian Institute website (link or see below). Since that time, Bernie has been dominating more. It has only amplified the words I wrote below.

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With the rise of Bernie Sanders in the polls, the establishment is worried.  The prospect of a two-way race between Trump and Sanders in the general election has the powers-that-be out in full force.

The problem is that they don’t want to make it look too obvious with their opposition to Bernie. Many people, particularly Bernie supporters, already feel that the DNC rigged the primaries against Bernie in 2016.

Hillary Clinton obviously sought to take the nomination in 2016 (and would take it in 2020 if given the chance) because her goal is political power.  But the issue is a little more complex regarding why the establishment fears a Bernie presidency.

Bernie is disliked by the establishment for similar reasons as Trump.  They both sometimes tell the truth, particularly in regards to U.S. foreign policy.

There is a difference between the average person on the street who is a Trump hater and those within the power network of Washington DC.  Someone may hate Trump because of his brashness, his rude Tweets, and his overall arrogant demeanor.

This does not get to the core hatred from the establishment.  They don’t like Trump mostly because of his inconsistent views on foreign policy.  They want someone consistent, but not consistent in the views of someone like Ron Paul.  They want someone who will consistently uphold the U.S. empire and the military-industrial complex.

Trump sometimes tells the truth.  He sometimes makes gestures towards peace, at least rhetorically.  But even when he is siding with the regime, his truth telling can still be damaging.

For instance, he said that U.S. troops would stay in Syria to control the oil.  This is no different from previous administrations, but Trump bluntly told the truth, which the establishment doesn’t like because it can delegitimize U.S. foreign interventions.

And this is really the great thing that Trump has done on behalf of liberty.  His policies have been mostly horrible (continuing the tradition), but he is helping to delegitimize the U.S. empire.  Sometimes it is inadvertent, but we’ll take what we can get.

Of course, Trump has had some good things to say on foreign policy, particularly when he was campaigning.  He said that we were lied into war in Iraq.  He said he wanted to get along with Russia.  It must be clear that this is why the establishment doesn’t like him.  They are afraid that he may follow through on some of his rhetoric and that his rhetoric will be persuasive to the American public.

Trump Over Bernie

The establishment doesn’t hate Bernie because he has described himself as a socialist. I doubt that Wall Street is even that worried.  If stocks begin falling prior to the election, Trump will try to blame it on the prospect of a Bernie Sanders presidency.  But if stocks fall, it will be because we are in a massive bubble (which Trump described in 2016 before the bubble got bigger).

Bernie’s domestic policies do seem scary, but they are likely no bigger of a threat than any other of the presidential contenders.  We already have a disastrous healthcare system.  It’s possible Bernie could get his universal healthcare system (i.e., government healthcare), but that is still somewhat of a long shot.

In terms of spending, it really can’t get any worse than it already is.  We have one trillion dollar deficits, and this is during a supposedly prosperous period.  If anything, the Republicans in Congress may actually start caring about federal spending again if Bernie is in the White House.

The reason the establishment is against Bernie is mainly due to foreign policy.  They are afraid he might disrupt the military-industrial complex.

I don’t have a great degree of confidence that a Bernie presidency will lead to a significant change in U.S. foreign policy.  It’s certainly more likely than with a Biden or Buttigieg presidency, but we shouldn’t be fooled.

Bernie is rather weak. After having the DNC snatch the nomination from him in 2016, he endorsed the bloodthirsty Hillary Clinton, who never met a war she didn’t like.  That alone should tell you how strong Bernie will be in office.

It is also important to consider that Bernie puts little emphasis on foreign policy.  He tends to be good on the issue (relatively speaking) when asked, but he is more obsessed about taxing the top 1% than he is about stopping the bombing of innocent people in foreign countries.

Even though we don’t know for sure how a Sanders presidency would turn out, it is certain that the establishment media and the rest of the cesspool in Washington DC are trying to prevent his nomination because of the uncertainty.  He may actually follow through with some of the things he says, and they can’t take that risk.

If Bernie actually gets the nomination, I actually think the establishment may quietly side with Trump.  They would rather the devil (from their perspective) that they know.  Trump has been in office for over 3 years, and while he has done some damage rhetorically to the establishment, foreign policy has not changed much up to this point.  The wars go on.

With Bernie, there is more uncertainty.  Therefore, the military-industrial complex and the rest of the establishment may prefer Trump over Sanders.  It should not be surprising if they put someone up like Michael Bloomberg to run as an independent in the general election in order to take votes away from Bernie Sanders.  It would split the anti Trump votes.

It will largely depend on how Bernie acts if he gets the nomination.  I think he will moderate his views in the general election.  He won’t call himself a socialist when he is up on stage debating Trump.  He will come across as more reasonable, at least on domestic issues.

The big question will be his views on foreign policy.  The establishment will try to get close to him in order to control him.  If Bernie starts hiring foreign policy advisors who have been pro war in the past, then they will feel reasonably comfortable that they can control him.

It will be a different story if Bernie keeps speaking against U.S. wars and interventions. If he suggests having someone like Tulsi Gabbard as Secretary of State, then the establishment will really flip out.  They will prefer Trump at that point.  You will see the establishment media change its tune on Trump.  They won’t be outright nice to him, but they will quietly change the narrative to make Bernie look like more of a crazy person.

The good news in all of this is that we have reached a point where the deep state is not in full control. We could have a general election with two candidates who are not approved by the establishment. Regardless of how bad they may govern, this is still a positive sign for liberty.