The Federal Open Market Committee (FOMC) released its latest monetary policy statement.  It had become widely thought that the FOMC would lower its target of the federal funds rate by one-quarter percent.  This is what the Fed delivered.

The markets were rather tame after the announcement, which is almost an event in itself. There is typically a parsing of words that leads to a market overreaction one way or another. With this recent announcement, stocks were down a bit at first, but ended up little changed for the day. Gold did fall a bit.

While nearly everyone focuses on the statement itself and whether the Fed is “lowering rates”, I like to look at the detail found in the Implementation Note.

There wasn’t a lot that was interesting this time around.  The Fed will now pay a rate of 1.8 percent on bank reserves. In other words, there is still free (for them) money for the banks, but a little less of it than before.

The 1.8% interest is just above the bottom of the target rate.  The target rate is now set between 1.75% and 2.00%.  The Fed is actually dropping this rate by 30 basis points (0.3%) from its previous 2.1% announced in the July meeting.

The most important takeaway is the statement on the balance sheet.  All holdings of Treasury securities will continue to be rolled over.  Meanwhile, up to $20 billion per month of mortgage-backed securities will be reinvested in Treasury securities.  On net, the balance sheet should stay about the same.  But the Fed will be shifting some of its holdings from mortgage-backed securities to U.S. Treasury securities (government debt).

The Fed’s short period of monetary deflation ended with the previous meeting in July.  So even though the Fed is lowering its target rate, its overall stance on monetary policy is neutral.  In other words, the Fed is not inflating or deflating the money supply at this time.

This doesn’t mean that prices won’t change.  It just means that the base money supply is relatively neutral.  I think it will stay this way until there is more evidence of an economic downturn.  When things get bad, we can expect monetary inflation again.

How Bad Are Things Going to Get?

Trump says that the economy is booming, yet he wants the Fed to lower rates to zero or negative. He wants the boom to keep going until November 2020.  If things get bad before then, his chances of winning reelection will be reduced significantly.

While the establishment media is mostly very unfavorable towards Trump, and in an obvious way, there is more silence in regards to the economy.

Even though the establishment media wants to see Trump lose the election in 2020, they are mostly keeping with past trends in not talking down the economy.  There have been a few warnings about the inverted yield curve, but most pundits are not screaming that a bad recession is coming right at us.

But if the economy is doing well, then why is the Fed lowering its target interest rate? Why did the Fed abandon its balance sheet reduction so quickly?

The unemployment rate is near an all-time low.  Stocks are near all-time highs.  Price inflation, as measured by the CPI, is around 2%.  It is just below 3% if you use the median CPI.

We are supposedly 10 years into the recovery, yet the Fed is lowering its target rate.  And consider that rates are still historically low.  Even short-term rates, being at 2%, are very low.

The Fed is saying that there are “implications of global developments” and “muted inflation pressures”.  Is this the best they can do for giving a reason to lower rates?

I think the Fed members are worried.  They are just not showing their hand.  They see the inverted yield curve.  They see that you can buy a 20-year bond for close to the same interest rate as a one-month Treasury bill.  They know something bad is brewing.

They aren’t going to come right out and say that a recession is likely in the near future.  They would be accused of talking down the economy, and not just by Trump.

They also want to be seen as doing something.  If the economy tanks 6 months from now, they can say that they had already started dropping rates in anticipation of trouble ahead.  Meanwhile, Trump will continue to blame the Fed for not being aggressive enough.

It doesn’t really matter what the Fed does at this point, barring some kind of massive monetary inflation as never seen before.  They can lower short-term interest rates all they want at this point, but it isn’t going to stop the massive correction that is coming.

The Fed was lowering interest rates in 2007 before the official recession began.  The financial crisis didn’t become evident until late summer of 2008.  In other words, the Fed’s tinkering had no impact in stopping the recession that was coming.  It won’t be any different this time around.

I am still expecting a recession in 2020.  We’ll see if it hits with full force prior to the election.

I think everyone should prepare for what is coming.  Unemployment is going to go up.  Nominal wages will go down.  The good news is that consumer prices will likely go down too.

While I expect housing prices to go down in most areas, I don’t think it will be as severe as what we saw a decade ago.  The biggest bubble now is in stocks.  I will not be surprised to see a major drop of 50%, or 60%, or even more.  It will eventually depend on how fast and furious the Fed reacts to the situation.

We could end up seeing a return to QE like never before.  It was astounding what the Fed did from 2008 to 2014, more than quadrupling its balance sheet.  If we hit a deep recession, we could see the Fed creating $100 billion per month.  Maybe it will be $200 billion per month.  That will be the time to buy gold and silver and other hard assets.

We could also see our first $2 trillion annual deficit.  It was amazing to see it hit $1 trillion.  It is amazing that it is close to $1 trillion now, and that is with a supposedly booming economy.

It is impossible to say how all of this plays out.  But with the Fed lowering short-term rates during a supposed economic boom, we know something is up.  It is wise to prepare for what is to come.

I watched three hours of torture so that I could bring you this libertarian analysis of the debate.

It was incredibly disappointing not having Tulsi Gabbard on the stage, but it was not surprising. Her anti interventionist positions, at least when it comes to foreign policy, could not be tolerated by the establishment.  It would have been surprising if the DNC had not found a way to keep her off the stage.

Here is an analysis of the 10 candidates who were on the stage.

Andrew Yang

Andrew Yang said something about 10 American families winning $1,000 per month (sign up on his website) and what they could do with an extra $1,000 per month for a year.  I like Andrew Yang better than most of the rest of the candidates, but this is incredibly stupid.

Of course any family getting an extra $1,000 will be better off.  If it is only ten families getting this money, then it will be a huge benefit to those families.  But what happens when 120 million families get this?  Who pays?

We can approach this the same way as minimum wage laws.  If $15 per hour would be so good, then why not $50 per hour or $100 per hour? So my question to Yang is: Why not $10,000 per month?

Let’s do some math. If every single adult American – let’s say 250 million people – received a monthly check for $1,000, that would be $12,000 per year times 250 million.  That is $3 trillion per year.  The federal budget is currently just over $4.5 trillion. The annual deficit is near $1 trillion.

Is Yang going to cut $3 trillion elsewhere out of the federal budget?  No.  His proposal is to have a value added tax (VAT).  If he is going to collect $3 trillion per year with a VAT, that is going to be one high tax.  So you can get your $1,000 per month, but you will be paying $10 for a loaf of bread and $3,000 for a new iPhone.

But there is something really positive about Yang.  He brings the welfare state directly to the front and center.  The Democrats like to make fun of Republicans for believing in trickle-down economics (although this originally started with George H. W. Bush against Ronald Reagan with voodoo economics). The Democrats believe in trickle-down economics by going through government bureaucracy.  Andrew Yang is directly exposing the welfare state.  He is saying, “let’s just give the money directly to the people.”  But that might impact our system of lobbyists and bureaucracy. It would expose the administrative state.  This is why the Democratic establishment doesn’t really like Yang.

Kamala Harris

Kamala Harris is still the scariest of all the candidates.  She is an authoritarian leftist.  Maybe this is somewhat redundant, but she is really the worst of all worlds.  She is bad on virtually every issue.  She favors the police state.  She favors the war state.  And she favors more welfare and bigger government in virtually everything.

I hope that Tulsi Gabbard saved us from this dangerous woman.  It was a secondary reason for the Democrats to get Gabbard off the debate stage.

Beto O’Rourke

Beto O’Rourke is an incredibly annoying gnat, although that may be an insult to gnats.  He is just annoying in almost everything he says.  It is surprising that he almost beat Ted Cruz for a senate seat.  It shows you how much Cruz went down in public opinion after running for president.

O’Rourke started out by saying that the racism of Donald Trump was welcomed with open arms when someone went on a shooting spree in Texas.  This is over-the-top hyperbole, and I hope that even Democrats can see right through it.

Most of what he says is dangerous.  I hope most everyone else finds him as annoying as I do.  Actually, everyone else can find him half as annoying as I do, and that will be good enough for him to get little traction.

Bernie Sanders

Sanders opened up talking about Medicare for all and a green agenda.  He says almost nothing about foreign policy unless he is directly asked.  When he does talk about foreign policy, he tends to be pretty good from a libertarian standpoint, at least as compared to the other candidates.

But I don’t trust Sanders at all.  He will be quickly taken over by the war faction if he becomes president.  He puts no emphasis on his foreign policy. The fact that he campaigned for Hillary Clinton in 2016 says it all.  She is as much of a war hawk as anyone.  Sanders may say some good things about non-intervention, but he has no strong principles on this most important issue, and the one significant issue where he sometimes makes sense.

I do not fear a Sanders presidency as much as others.  I believe he would be ineffective at getting most of his welfare state initiated.  It is already big, and there is a massive annual deficit during supposedly good times.

One amusing moment was when Sanders was asked about Venezuela and how that compares to his version of democratic socialism.  He said not to equate his democratic socialism to what is going on in Venezuela.  Then he went on to say we should be more like Canada and Scandinavian countries.  He said we need universal healthcare, a living wage, etc.

The point that is often missed is that Sanders supported the socialism of Venezuela a decade ago. He only repudiates it now because of the results.  Venezuela is just an example of bringing socialism and continuing it to its ends. When the market is not allowed to function, then the state is eventually left with a choice of easing back restrictions and allowing somewhat of a market economy, or bringing death and violence to anyone who opposes it and even to those who are too weak to do anything about it.

Socialism is violence, but Sanders won’t express it this way.

I expect Sanders to be one of the final three standing for the Democratic nomination.

Joe Biden

There isn’t much to say about Biden.  He is trying to win by default.  And with this field, it just may work.

He has to say some things that he wouldn’t have said in the past to satisfy the left.  But we know he is a true establishment candidate who will not rock the boat.

He said a few decent things regarding the criminal justice system, but this is hard to take seriously.  Where was Barack Obama for 8 years?  Obama could have pardoned everyone convicted on federal drug charges, but he didn’t.

At this point, Biden is just hoping not to mess up.  He has to minimize his gaffes.  He made a few minor ones during the debate.  He should be happy that Elizabeth Warren is now leading in some polls.  It takes some pressure off of him, and I think Warren has many issues that could be exposed.

Elizabeth Warren

Elizabeth Warren has become the left’s alternative to Bernie Sanders.  She is a leftist, but a little bit more acceptable to the establishment.

I don’t fear a Warren presidency any more than the other establishment candidates.  I think she comes across as phony, but apparently some people have bought in to her rhetoric.

She has still not been asked on the debate stage about her lying to get into college by claiming she is a Native American.  Aren’t some celebrities on the verge of going to jail because they lied to get their kids into college?

If she ends up on the debate stage with Donald Trump, he may just continually call her Senator Pocahontas.  If the Democrats were smart, they would address this issue now to see if she can survive it.

Warren does not come across genuine as it is.  I think she will have a likeability problem in a general election.  She will look like a more incompetent version of Hillary Clinton, although less criminal.

Pete Buttigieg

Mayor Pete, as they call him, does come across as likeable.  It was interesting how he said he wants to have a Medicare option for all and to let each person make the choice.  He somehow tried to come across as being in favor of individual freedom (pro choice) while proposing something that would vastly increase government.

The problem with his proposal is that it does not give you a choice because you don’t have a choice to not help pay for it.  Under his healthcare plan, you can choose an expensive private health plan or a less expensive government plan.  Your taxes will be high either way.

Buttigieg is a second-tier candidate, but he has the potential to make it to first-tier status if any of the others slip.

Amy Klobuchar

She was incredibly boring and stands little chance at being the nominee, unless every other candidate implodes, which isn’t completely out of the question.  She was given favorable reviews in the post-debate polls because she came across as half sensible at times.  If Biden drops out, maybe she will get some traction from the so-called moderates.

Julian Castro

Castro is slightly less annoying than O’Rourke, but not by that much.  His big moment was going after Biden and challenging his memory.  The establishment media is saying he was making fun of Biden’s age.  I don’t think that was his intent, but I don’t care either. Castro is horrible and annoying.

Cory Booker

Booker does not stand out much.  He could be a compromise candidate as an establishment leftist, but Warren is beating him out for that right now.  Several of the other candidates would have to implode for him to have much of a chance.

Conclusion

As of right now, I would put Warren, Sanders, and Biden in the top tier of the candidates, meaning they have the best chance of getting the nomination.  I think our country can survive any of them, even it won’t be pleasant.

Harris is still a contender unfortunately, but I think her chances are slim.

We should also watch Buttigieg, who may make a run if the stars align for him.

Unfortunately, it is probably near the end for Tulsi Gabbard.  She needed to be on that debate stage.  Maybe she can make one last run to get her poll numbers higher.  She should be reaching out to libertarians who like her mostly anti-war message.

It may not matter anyway because we know the DNC likes to rig things to keep out anti-establishment voices.

It would have been more fun to have Gabbard on that stage challenging the other candidates on foreign policy.

It has been an interesting week for Trump, and there has been shortage of idiotic comments. Unfortunately, some of those idiotic comments have come from people calling themselves libertarians, or associating themselves with the liberty movement.

Trump tried to end the war in Syria last year, saying he was going to pull all of the troops out. Then he took a beating by the left, the establishment media (which mostly overlaps the left), and the war hawks.  This included several people in the Trump administration.

While Trump can be bold on Twitter and a debate stage, he isn’t so bold when it actually comes to following through on doing the right thing.  He was unable to stand his ground on Syria, even though he is supposedly the Commander-in-Chief.

This past week, there was hope that he was going to finally end the longest hot war in American history.  The U.S. military has been in Afghanistan for nearly 18 long years, and Trump was going to negotiate a withdrawal with the Taliban.

Of course, I don’t know why he can’t just withdraw.  Maybe he wants assurances from the Taliban that they will allow U.S. troops to leave peacefully.  Beyond that, there isn’t really much to negotiate.

When there was an attack in Afghanistan that killed people, including an American, the meeting was called off.  Who knows if the Taliban actually did it, but it is a shame that one more violent act could lead to many more in the future.

After that, John Bolton was fired as National Security Advisor.  Bolton was quick to go on television and say that he resigned. Either way, it was obvious that Bolton’s agenda was different from Trump’s agenda.

While we can lightly applaud Trump for doing the right thing, let’s remember that Trump was the blundering idiot who put Bolton in that position in the first place. Bolton was already a well-known war hawk, but that didn’t stop Trump from putting him in that role. That is not what you would call draining the swamp.

Justin Amash – An Enemy of Liberty

Justin Amash is a congressman and former Republican.  He was the first Republican in Congress (at the time) to call for the impeachment of Donald Trump.  But he wasn’t calling for Trump’s impeachment because his policies are helping to starve children in Yemen.  He wasn’t calling for Trump’s impeachment because he has been overstepping his power in hiking tariffs without congressional approval.  He wasn’t calling for Trump’s impeachment because Trump bombed Syria.  If he had called for impeachment over any of those things, then he would have also had to call for impeachment of Obama when he was president.

No.  Amash wants Trump impeached for supposedly obstructing justice in the investigation of Russian collusion.  He wants Trump gone because he may have interfered with the witch hunt to overthrow the sitting president because some people didn’t like the election results.  Amash bought into the whole Russia hoax.  He is either a liar or incredibly naïve.

Anyone who is promoting the Russia hoax, regardless of motives, is helping to fuel tensions between the U.S. and Russia.  Many people, including Amash, find it acceptable to slightly increase our risk of nuclear war if it means getting the chance to dethrone Donald Trump.

Now, here’s the latest from Amash.  He sent a Tweet saying some good things about ending the war in Afghanistan, but then ended it with this: “How about we end the war without inviting the Taliban to dinner on the week of 9/11?

In other words, Amash is going to hammer away at Trump over something symbolic.  He would rather see a continuation of war than to have Trump meeting with Taliban representatives during the week of 9/11. I know he says that Trump should just end the war, but then why does Amash mention 9/11 at all?  It is completely counterproductive to his original message.

By the way, the Taliban didn’t commit the attacks on 9/11/2001.  The best you can say is that the attacks were planned on soil that was controlled by the Afghans.  But if that is your measure of being guilty, then all Americans are guilty too.  The hijackers were planning the attacks on American soil and getting flight training.  I don’t think the Taliban was giving lessons on how to fly airplanes.

When Amash entered Congress, some said he would be the next Ron Paul.  That has turned out to be a joke.  Amash certainly does take many libertarian positions, but he is either a liar or doesn’t understand the workings of the deep state. And his priorities are not set straight, as he would rather risk more war in order to score points against Trump.

Nicholas Sarwark – An Enemy of Liberty

The second “libertarian” who has shown his true colors is Nicholas Sarwark, the chairman of the Libertarian Party.  He is a good example of why I have generally not supported the Libertarian Party over the last decade.

Like Amash, Sarwark takes some libertarian positions.  But on the key issues, he is horrible.  Sometimes you have to pick out the nuances in what he says. Other times, he is more obviously against the liberty movement.

After Bolton was either fired or resigned, Sarwark said that the country is safer without Bolton in there, and he criticized Trump for his lack of judgment for putting him in there in the first place.  So far, so good.

Then, Sarwark said: “There’s also a fight over who is telling the truth about circumstances of the resignation.  All I’ll say is Bolton doesn’t have a long and documented track record of being a liar.”

He later sent another message saying: “Bolton lied about WMDs in 2001 and said on TV that he believed in lying for national security reasons.  The President has over 12,000 documented lies in the last 3 years, many of them petty things to make himself look better.  An opinion on who is lying is not an endorsement.”

First, I don’t really care much if Bolton resigned or he was fired.  Again, Sarwark will find any reason to go after Trump.

Second, where does he get his statistics from?  Who has 12,000 documented lies by Trump?  Is it the media?

With that said, here is the larger point.  Bolton’s lies have led to devastation and death to millions of people. He lies in order to start wars and overthrow foreign governments.

Even if Trump has lied 12,000 times, all of those lies combined can’t equal one lie by Bolton that kills hundreds of thousands of people.

This is the “libertarian” version of Trump Derangement Syndrome.  Let’s criticize Trump for every little thing, but overlook the lies that lead to devastating wars.

There are still many good libertarians in the Libertarian Party, but Sarwark represents what is bad about the party.  That is why he is a defender of Johnson and Weld.  Gary Johnson is a questionable libertarian who did not do a good job (in both presidential campaigns) of communicating a message of liberty.  Bill Weld is not a libertarian at all.   He is just a war hawk Republican who happens to tolerate gay marriage and marijuana.

I know that some libertarians will say that there is too much infighting within the libertarian movement.  Maybe that is so. But I don’t consider Amash or Sarwark to be friends of liberty.  In many ways, they are working against us.

That is why they should be called out and ridiculed.  They would rather score points criticizing Trump than actually helping to get us peace in the world.  They would rather see Trump fail than to end a war.  These people are not friends of liberty.

U.S. stocks ended this past week on a positive note, or at least that’s how it seemed.  The problem is that every time we have a few big up days in stocks, I get this feeling that it will directly correlate to the number of people who will be devastated in the end.

I believe this is a suckers rally.  It will only serve to quell some fear that has been recently lingering.  There may be more rallies before this whole thing is over. After all, it took two years after the inversion of the yield curve in 2006 before things really fell apart.

When you look back, we were already in a recession at the beginning of 2008, but people didn’t know it yet.  It was really September 2008 when the wheels fell off, but the official recession is recorded as beginning in December 2007.

The yield curve is mostly inverted. The most relevant portions of it are inverted.  I don’t care all that much about the 10-year yield versus the 2-year yield.  I think it is more significant that the 10-year yield is below the 3-month yield.  The 30-year yield was below the short-term yields for a short time, and it is now close to flat.

The interesting thing to me is that some people are actually talking about it.  Some people are actually daring to mention the “R” word – recession.  It isn’t being touted in any official Federal Reserve statements, but you will get some mention of a recession possibility on well-known websites and on CNBC.

Now throw this into the mix.  Former New York Fed president, William Dudley, actually said that the Fed should not bail out Trump for his tariffs.  He said that if the goal of monetary policy is to achieve the best long-term economic outcome, then Fed officials should consider how their decision will affect the political outcome in 2020.

If Dudley is thinking this, I can’t imagine that current Fed officials are not.  They did lower the target federal funds rate at the last meeting.  I don’t think they want to get at Trump so much as they do not want the brunt of the blame when things go bad.  Neither does Trump, which is why he is preemptively blaming Powell and the Fed for being too tight.

Jerome Powell is a bureaucrat and an establishment shill.  Trump should have known this when he appointed him as Fed chair.  Maybe Trump did know.  It makes it all the easier for Trump to pick a fight with him now.

I am sure Powell despises Trump at this point.  Trump beats up on Powell on Twitter, and Powell is forced to sit there and take it.  I suppose that Powell could respond, but he is a scared bureaucrat, and he doesn’t want to disrupt things more.  He is probably hoping that Trump loses in 2020.  He’s not likely to get reappointed either way.  But Powell is not going to try to sink the economy, or at least not make it obvious that he is trying to sink the economy. This is why he’ll go along with a one-quarter point rate cut to the federal funds rate.  It won’t stop a recession, but it makes it look like he’s doing something.

The Great Crash

There are similarities to 2007/ 2008 right now, but there are also differences.  I expect housing prices to go down significantly in many areas at some point, but I doubt it will be as severe as the previous housing bust.  That is the good news.

The bad news is that we are worse off in many ways.  The monetary inflation from 2008 to 2014 was bigger than anything we have seen in the U.S. since the creation of the Fed.  Some of this was kept in check by the massive excess reserves piled up by the commercial banks.  But the loose money and low interest rates have massively distorted the allocation of resources.

The national debt is ridiculously higher than it was.  We may see a one trillion dollar deficit in fiscal year 2020 even without a recession.  It is getting to the point of absurdity, and it makes you wonder how this whole thing will unravel. I don’t know how it will unravel, but I expect it to unravel quickly once it gets going.

The banks have already seen massive bailouts.  They were bailed out directly in 2008 and 2009.  This infuriated much of the American public, although not enough for any kind of serious consequences.  So the Fed started bailing out banks by buying up mortgage-backed securities and by paying interest on bank reserves.  I guess this could be seen as good news in the sense that many banks should not be quite as brittle in the next recession.

And then there are stocks.  I believe this is the massive bubble.  I am not counting bonds because I don’t think bonds are going to unravel in the immediate recession.  If anything, rates will go down.

Stocks have exploded since March 2009.  It is an unprecedented bull market that has lasted for over a decade now. It is going to crush some people who have based their future plans on a retirement portfolio that is heavily in stocks.

These people could get out now, or at least some of them could.  But most of them won’t.  They are sold a line that they should buy and hold and stay in it for the long run.

What if we see U.S. stocks crash by 80%?  Will we still hear people advising to buy and hold?  Actually, the advice might be more appropriate at that time, but it will have already devastated anyone already following that advice.

Buyers and Sellers

When stocks go down, we hear that there is a “sell-off”.  Or we hear that the people are selling today.

I am not faulting anyone for saying this, but it is important to note that this is not precise language.  That is because whenever a stock is traded, there is a buyer and seller.  There may be more than one buyer and/ or seller, but there is a buyer to match each seller for each share.  In order to sell stock, you have to have a willing buyer.

The key is the price. You could own a stock that is “worth” $100 per share.  But this is really just the price that it was last traded.  It doesn’t mean you can get this price if you want to sell.

You could have many willing buyers, but maybe they are only willing to buy for $80 per share. So it isn’t really a question of how many buyers and sellers there are.  It is a question of what price they are willing to buy and sell.

The reason I bring this up is because stocks can fall in price very quickly.  If the sentiment turns, then things can get ugly.  Stocks can go up for 10% per year for several years and then get wiped out in the matter of weeks or days if the news is bad enough.

The inverted yield curve is telling us that a recession is ahead.  I believe the bond investors.  The bond market is smarter than the stock market.  Of course, markets don’t have brains, but the people buying and selling in them do.

There are many stock investors who have their accounts on autopilot.  Think about someone with a 401k.  They have a certain amount from each paycheck going into their account.  Some people have all, or a good portion, of their money going into mutual funds made up of stocks.  This is not as much the case with bonds.

There are millions of Americans who are relying on a healthy stock market in order to retire. If you are 25 or 30 years old, it is probably not a big deal, unless you were planning to retire really early. But for people who are in their 40s and 50s, and even older, they are going to be devastated if they have staked their future plans on the wealth derived from stocks.

When I see these big up days for stocks, I know that it will mean even more pain on the way down. I think it is wise to plan for a drop in stocks of at least 50%.  If this makes you nervous, then do something about it.  With the massive bubble and the time that has gone by, I don’t think it would be impossible to see a fall of 80%.

When that happens, I may just buy and hold for a while.  That’s when everyone will have stopped recommending that strategy.

I previously wrote a post titled “Is It Wise to Take Out a Loan Against Your 401k”.  While I think that explored some of the pros and cons of a using a 401k loan, I would like to add some more material and go a little deeper here.

The conventional wisdom from the “experts” is that you generally shouldn’t take out a loan against your 401k.  This is probably good advice to someone who does not live an intentional life and is not a careful consumer.  However, for someone who is financially savvy, there are many nuances to consider.

There are some people who say you should “never” take out a 401k loan.  I think it is safe to completely disregard someone who says this.  I mean, if you don’t have any money to put food on the table for your child, should you really choose starvation over a 401k loan?  I understand this would be an extremely rare situation, but it is still a situation, which is why the word “never” shouldn’t be used here.

It is important to note that you typically can’t make a withdrawal from a 401k account if you are still employed with the employer that sponsors the plan.  You may be able to take a hardship withdrawal under certain circumstances.  Therefore, if you have not reached the age of 59 ½, sometimes a loan is the only option you have to access “your” money.

If you can take a withdrawal, this may be the best option to take.  There are pros and cons with that too.  But you should know that you will likely owe income taxes, plus a 10% penalty.

Disadvantages

One of the main reasons that you shouldn’t take out a 401k loan is that you will be stuck paying it back, with interest and fees.  Depending on the interest and fees, this could really hurt your cash flow. Sure, you are paying back the interest into “your” account, but you can’t access this any more than you can access the rest of it.

Therefore, the loan is like any other loan in the sense that you have to make payments on it. In most cases, it will come right out of your paycheck, which is really probably a direct deposit.

On this, I am more on the side of the conventional wisdom.  If you are buying a luxury item as a consumer, then you probably shouldn’t take the loan.  If you can’t pay with money already saved outside of a retirement account that you can actually access, then you probably shouldn’t be buying the item. A car or house can qualify as a luxury item because people more often than not get a more expensive car or house than what is really necessary.

The most important thing here is that you shouldn’t take out a loan from your 401k if you wouldn’t take out the same loan from a bank.  You don’t want to put yourself in too much debt.  And a 401k loan is a debt because you have to make payments on it.

In addition, you should consider the fees that your plan may charge.  If you have to pay a large fee or a quarterly maintenance fee (or something similar), then consider if a loan is worth it.  If you are taking a $40,000 loan with a one-time fee of $50, then it is not a big deal.  If you are paying a one-time fee of $50 for a $1,000 loan, that is 5% of the loan right there.  Even if the interest rate is low, that is probably a bad deal (unless it is to put food on the table).

Advantages

So why not just take out a loan from a bank?

The most obvious reason, and perhaps the best reason, is that you pay back the interest into your own account.  Even if you can’t access that money now, you will likely be able to access it when you hit the age of 59 ½, or you can take an early withdrawal (with payment penalty) when you are no longer working for the employer that sponsors the plan.

If you are going to take out a loan with a 5% interest rate, you might as well pay the interest into your own account instead of handing it over to the bank or lending institution. Even if your 401k plan charges a 5% interest rate, and you could get a bank loan with 4%, you may still want to get the 401k loan.

One of the main criticisms of taking out a 401k loan is that you miss out on compounding interest. But this is only correct if your returns are that much greater than the interest rate itself.  And of course, there are no guaranteed returns when it comes to investing in the stock market.

If the interest rate is low, then you are getting a cheap loan.  If the interest rate is high, then you are paying that “return” to your own retirement account for that portion of the money.

I think this is really where the difference of opinion comes in on whether to use your 401k account as a loan source.  People who think you should buy and hold stocks because they historically return an average of 8 to 10 percent per year are not going to favor taking money out.  If I thought I was going to average 8 to10 percent per year in stocks, then I probably wouldn’t want to touch that money either.

But not everyone holds this long-term view, including me.  There is no guarantee that stocks will keep returning 8 to 10 percent every year.  And even if they do, it is a wild roller coaster ride to get that. If I can get a guaranteed return of 5% on a portion of my money, I’ll take it in this low-interest rate environment.  Therefore, if I am going to take out a similar loan anyway, I may as well pay the interest back to myself with the guaranteed rate.

One strategy I have suggested before is that you can actually take out a loan against your 401k to finish off an existing loan.  If you have $10,000 left on a car loan, you could take out a $10,000 401k loan and pay off the balance.  You can make payments back to your account similar to what your remaining monthly car payments would have been.

This could even work for a mortgage if your balance is low enough.  If you have a large balance in your 401k account, you may be able to take a loan up to $50,000.  If you have, let’s say, $40,000 left on your mortgage, then you could pay it off with a 401k loan.  Your cash flow would still be similar, but the interest would be going into your retirement account instead of to the mortgage lender.

I would only implement this strategy if you can pay off the car loan or mortgage in its entirety.

These are some of the considerations when deciding whether to take out a loan from your 401k account.  If you are risk averse and looking for a guaranteed return on some of your money, then a loan may be appropriate in some situations.

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.