More good advice from Bill Bonner ...although I'll have to clarify a couple things hes says about gold. First, he says that in 1980 the stock market "share prices were so cheap that you could buy all of the stocks on the Dow with one ounce of gold." I'm pretty certain that he meant one share of every stock on the Dow. But the bottom line was that "Today the stock prices are so high, that you would need 14 ounces of gold to buy (one share of each of) the Dow stocks." So he proposed a simple trading model: "When the Dow is worth less than 5 ounces of gold, buy stocks and sell gold. When the Dow is worth more than 10 ounces of gold, sell stocks and buy gold." This sounds reasonable to me, but I would modify his following statement that "The quantity of gold increases, but only about as fast as the quantity of goods and services that it can buy." There is a more powerful factor determining how fast gold metal grows, namely compared to the gold metal all ready existing, the yearly growth is only about 1.6% of the gold metal currently in circulation ...and these yearly additions will gradually get smaller in the future. Stock markets can go up and (likely soon) go down ...whereas gold changes only a percent or so in a year. Which will you choose?

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bill@billbonnersdiary.com

OUZILLY, France – Markets seemed to stand still yesterday.

Like autumn leaves on a tree, they wait for a stiff wind and a cold frost.

This week, the Fed is scheduled to make a weather forecast.

Bloomberg reports that only two of the Fed’s 23 “primary dealers” – banks that buy bonds directly from the government – expect a rate hike decision tomorrow when the Fed meets.

“Tall Paul”

Of course, anything is possible.

But the Fed’s position is clear: It may raise rates tomorrow, or it may not.

It hardly matters. Either way, it will not – it cannot – stick with a credit-tightening cycle in the face of the inevitable selloff on Wall Street and the recession on Main Street.

The days of former Fed chief “Tall Paul” Volcker are over.

Back when Volcker took over the Fed in 1979, the economy could still survive a hard freeze. The new debt-based money had not yet done its mischief.

In 1980, Volcker’s first full year as Fed chief, U.S. national debt was below $1 trillion (now it is more than $19 trillion). If you wanted to buy a house, you had to pay 12% interest on your mortgage. And the stock market had been drifting down for the previous 14 years and trading at valuations not seen since the 1930s.

And with consumer prices rising at a nearly 14% annual rate, Volcker had to do something.

Unlike his ultimate successor Janet Yellen, he did not announce a wimpy program of rate hikes – one-quarter of a percentage point every three months – and then not do it.

Instead, he boosted short-term interest rates from 11% to a peak of 20% in June of 1981.

Monetary Winter

A frost? Volcker brought on a blizzard.

And the politicians wanted his head for it.

A group of eminent economists demanded he be removed from office. An effigy of him was burned on the Capitol steps.

But Volcker’s program stuck. And it worked. Two years later, consumer price inflation was running at just 3% a year. Volcker could lower interest rates. The economy boomed.

Today, no one is concerned about inflation. U.S. stocks are near an all-time high. And mortgage rates are at all-time lows. The prime rate – the benchmark rate for mortgage lending – is at 3.5%, a long way from its high of 21.5% in 1981.

And neither investors, households, banks, the feds, nor corporate America could survive even a mild monetary winter.

Of course, the weather changes without anyone’s say-so. And so, ultimately, do markets.

In 1980, for example, share prices were so cheap that you could buy all the stocks on the Dow with one ounce of gold. Today, stock prices are so high, that you would need 14 ounces of gold to buy all the Dow stocks.

Simple Model

We once proposed a simple trading model…

When the Dow is worth less than 5 ounces of gold, buy stocks and sell gold. When the Dow is worth more than 10 ounces of gold, sell stocks and buy gold.

When the Dow is worth less than 5 ounces of gold, buy stocks and sell gold. When the Dow is worth more than 10 ounces of gold, sell stocks and buy gold.The quantity of gold increases, but only about as fast as the quantity of goods and services that it can buy.

Stocks represent real wealth, too. It makes sense, at least to us, that there should be a more-or-less predictable relationship between real money and the companies that produce real wealth.

Just eyeballing the chart below, we see stocks going up and down. But we see a pattern, too. 

Had you stuck with our trading model, rigidly, over the last century, you would have had five opportunities to double your money.

You could have turned 10 ounces of gold – worth about $180 in 1917 money – into 320 ounces, worth over $400,000 in today’s dollars.

Assuming the dollar lost 95% of its buying power, that represents a real gain of about 1,000%.

What should you do now?

The chart is unambiguous: Sell stocks. Buy gold.

And root around in the closet for your mittens. 

Regards,

Bill Bonner is a rich guy. But you wouldn't believe it from his Dairy, which he provides free of charge. If you, like me, are educated and happy enough with your cashflow, reading his Dairy is like a conversation with a close friend. The only difference is that Bill tells you things that will help you make out in today's economy. The one I reproduce today really hits the things you would want to know in today's economic conditions. What should you do with your savings? How safe is the stock market? Bill has the best anwers.

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bill@billbonnersdiary.com

NORMANDY, FRANCE – We continue our work with the bomb squad.

Myth disposal is dangerous work: People love their myths more than they love life itself.

They may kill for money. But they die for their religions, their governments, their clans… and their ideas.

Great Cause

Some people think that even an idea as abstract as “freedom of speech” is worth dying for.

It was Voltaire who said: “I disapprove of what you say, but I will defend to the death your right to say it.”

Most people jump onboard the train of a Great Cause with enthusiasm and conviction. But many have the good sense to hop off quietly before their lives are in real danger.

We suspect that Mr. Voltaire would have done the same.

That’s why the deadliest myths are those that you can ride along with at no personal risk. Foreign wars, for example, are always a favorite.

When Pericles proclaimed that the honor of Athens was at stake, and that it must take up the imperial burden and continue its war with Sparta, he was not offering to invade Sicily himself.

Nor was George W. Bush, in announcing his War on Terror, suggesting that he would personally march into Mosul.

But when you act on a myth, you are soon hostage to it; if you cannot win, you will lose.

As it happened, Pericles died in his bed; Athens was destroyed; its population was either killed or enslaved.

The War on Terror, meanwhile, has cost about $3.6 trillion so far (according to the latest estimates from Brown University), and has left more than 7,000 U.S. soldiers dead.

But George Bush, Dick Cheney, Michael Ledeen, Elliott Abrams, Paul Wolfowitz, and John Bolton are still alive.

In fact, as far as we know, not a single one of those killed was a leading proponent of the war. Anywhere between 60,000 and 1.2 million people died on the other side (so many… and so difficult to verify… a whole industry has arisen trying to count them all).

Saddam Hussein, who had kept a lid on Islamic terrorism, was executed. Now there is a terrorist government in the area – ISIS – with U.S.-made weapons and a U.S.-trained head-of-state.

Recession Warning

But today we turn back to the world of money (pausing only to wonder if $3.6 trillion would have been squandered so readily had it been real money).

Markets are rousing from their summer sleep. We need to pay attention.

Here’s the situation:

The U.S. economy is still growing. But barely. And the pattern is clear. Instead of gathering strength, it is weakening… with lower GDP growth, quarter after quarter.

“Nominal” GDP growth is now 2.4% – the lowest rate, outside of recession, since World War II.

To get “real” GDP growth, you need to subtract inflation (the GDP deflator)... which, according to one official measurement, is 2.2%, not including food and energy. If those numbers were correct, it would mean the U.S. economy is essentially stagnant. Dead in the water.

Most likely, official inflation is understated.

President Reagan’s budget advisor, David Stockman, recalculates, taking out much of the statistical hocus-pocus from the feds’ numbers. He figures the real rate of price increases that most Americans suffer – his “Flyover CPI” – has been averaging 3.3% for this entire century.

Using that number, we see the real economy is now in recession, with a growth rate of MINUS 0.9%.

Most likely, the downward drift of output will continue. If so, you should expect an official recession before the end of 2017.

And most likely, that will sooner or later lead to a sudden sell-off in the stock market, when the myth of “recovery” finally dies.

This will lead to more intervention – “Drone Money” – from the feds… and to higher rates of consumer price inflation.

Inflation Threat

But wait… Inflation is already stalking the whole capital structure.

Bonds, for example, now depend on low rates of consumer price inflation… as far as the eye can see.

That’s because bond prices fall when interest rates rise. And interest rates rise along with inflation.

At today’s ultra-low yields, even a small uptick in interest rates will wallop bondholders.

That’s why investors pay such close attention to the Fed’s hints and teases. They know that today’s elevated bond prices depend on the lowest rates in 5,000 years.

If the rate of annual CPI growth is 3.3%, as Stockman calculates, and you have put your money into U.S. 10-year Treasuries yielding 1.5%, you are losing 1.8% a year in terms of purchasing power.

And if your money is in stocks paying a 2% dividend, you are losing 1.3% a year (more than that when you include taxes) in purchasing power.

Cockamamie Myth

In today’s markets, with such low yields everywhere, almost everyone must be losing money!

Let consumer price inflation move up just a little, and you will see a mass flight from both stocks and bonds.

It may have already begun. Since the middle of July, U.S. stocks have been bouncing up and down… with no clear trend, higher or lower.

But look at what has happened to the bond market. Ambrose Evans Pritchard, in the Telegraph:

Yields on 10-year Treasuries – the benchmark borrowing cost for international finance – have jumped 19 basis points to 1.7% since the middle of last week. [With bond yields rising, prices are falling.]

The amount of global government debt trading at rates below zero has suddenly fallen from $10 trillion to $8.3 trillion, with parallel effects for corporate bonds.

Investors, businesses, and households are now hostage to their debts. Their debts are hostage to interest rates. Interest rates are hostage to inflation. And the Fed is hostage to its cockamamie myth: that it can control and improve a market economy.

The Fed can mint new money to buy stocks and bonds… driving up asset prices. But the more money it creates, the closer the day approaches when consumer prices rise, too.

Then the whole shebang explodes. 

Regards,

Bill

Paul Craig Roberts explains the origins of Labor Day versus what it is today. Most Americans know little of the story ...including the blogger, who hopes you will also visit his preceeding post with an additional little known story of U.S. history.

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Labor Day

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June , 2016 | Original Here | If you wish to receive his newsletter via email go to Original and sign up at bottom.

Paul Craig Roberts

Labor Day—what is it? Perhaps not many Americans any longer know, so here is my explanation.

In my time Labor Day was the unofficial end of summer, because school began after Labor Day.

Today school begins almost a month before. When I was in school that would not have been possible, especially in the South. The schools were not air-conditioned. If school had started in August no one would have showed up. It was difficult enough getting through May before school was out in June.

As most Americans probably thought of Labor Day as the last summer holiday, now that Labor Day has lost that role, what is Labor Day? The holiday originated as an apology capitalists tossed to labor to defuse a standoff.

Workers understood that labor was the backbone of the economy, not Wall Street moguls or bankers in their fine offices. Workers wanted a holiday that recognized labor, thus elevating labor in public policy to a standing with capital. Some states created labor day holidays, but it wasn’t until 1894 that Labor Day was made a federal holiday.

Congress created the federal holiday in response to the murder of strikers by US Army troops and federal marshalls during the Pullman strike of 1894. The factory workers who built Pullman railway cars lived in the company town of Pullman. George Pullman provoked a strike by lowering wages but not the rents charged in the company town.

President Grover Cleveland relied on Attorney General Richard Olney to restore capitalist control. Olney, a former railway attorney, sent in the federal violence to break up the strike. Olney still received a retainer from his railway company that was larger than his salary as US Attorney General. So we know whose side he was on. The presstitute media portrayed the beaten down strikers as unpatriotic foreigners, and the strike leader, Eugene Debs, was sentenced to federal prison. The experience radicalized Debs and turned him into a socialist.

The obvious injustice created more sympathy for labor than capitalists could stomach, so Congress defused the situation by creating Labor Day. President Cleveland washed his hands of the blood on them by signing the legislation.

Officially what we are celebrating on the first Monday of September is American labor, but what is really being celebrated is the success of capitalists again flummoxing the people and avoiding a real social revolution.

The labor movement, which gave us Labor Day, is no longer with us. The American labor movement died about ten years after the death of its most famous leader, George Meany of the AFL-CIO. Meany, born in 1894, died in 1980.

I remember when labor was at the center of politics and policy. There was even a field of economics called “labor economics.” The political influence of labor ended with the offshoring of US industrial and manufacturing jobs. For years US capitalists tried to avoid a fair shake for labor by locating their facilities in Southern states that had right to work laws. But with the collapse of the Soviet Union and the change in attitude of India and China toward foreign capital, capitalists learned that they could increase profits by using foreign labor offshore to produce the goods and services that they sold to Americans. The difference in labor costs flowed directly into profits, executive bonuses, and shareholder capital gains.

Free market economists, who live in a make-believe world, pretend that the lower labor costs flow into lower US consumer prices and that consumers beneift despite the loss of well-paying jobs. The problem with free market economics is that a priori reasoning takes precedence over empirical fact. For free market economists, the way the world should be prevails over the way that the world actually is.

As a consequence of jobs offshoring, industrial and manufacturing cities became semi-ghost towns with declining populations. Municipal and state governments, deprived of tax base, found themselves under duress to make pension payments. To avoid immediate bankruptcy, cities such as Chicago sold off public assets such as 75 years of parking meter revenues for a one time payment.

The Democratic Party, which had been the countervailing power against the Republican business party, was deprived of union funding as the jobs that paid union dues were no longer in America. By moving production offshore, capitalists turned the Democrats into a second capitalist political party dependent on funding from the business sector.

Today we have one party with two heads. The competition between the parties is about which party gets to be the whore for the capitalists for the next political term. As Democrats and Republicans swap the whore function back and forth, neither party has an incentive to do anything different.

The offshoring of high productivity, high value-added US jobs has destroyed the labor movement. How much luck will labor leaders have organizing people who hold part-time jobs as waitresses, bartenders, hospital orderlies, and retail clerks? As I have pointed out for years in my reports on the monthly payroll jobs reports, the United States now has the labor profile of a Third World country. The absence of jobs that can support an independent existence and family life is the reason that more Americans aged 24-34 live at home with parents than live independently. The absence of jobs is the reason the labor force participation rate has declined for years. The absence of jobs that pay sufficiently to provide discretionary income is the reason the economy cannot grow.

Looking at last Friday’s BLS payroll report, the jobs are in the lowly paid, part-time service sector. The goods producing sector of the economy lost 24,000 jobs. The jobs are in retail trade, health care and social assistance, waitresses and bartenders, and government which is tax supported employment.

Whether Washington policymakers realize it or not, the American work force smells like India’s of a half centruy ago. Whatever deranged Hillary and her neoconservatives claim, there is no evidence in the compositon of the US labor force that the US is a superpower. Indeed, what the employment statistics show is that the United States is a third world country, a country whose leaders are so out of their minds that they are picking fights with first world countries—Russia and China.

The United States of America is on its last legs. As there is no willingness to recognize this, nothing can be done about it. America’s last function is to cause World War 3 in which all of us will expire.

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For any of those who think that Colin Kaepernick is some kind of a traitor and/or a disgrace to America, read the real truth below. It exposes a little known event in American history which took place when the young United States decided to grab Canada from the British Empire. It is something never mentioned in U.S. schools.

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Colin Kaepernick Is Righter Than You Know: The National Anthem is a Celebration of Slavery

Before a preseason game on Friday, San Francisco 49ers quarterback Colin Kaepernick refused to stand for the playing of “The Star-Spangled Banner.” When he explained why, he only spoke about the present: “I am not going to stand up to show pride in a flag for a country that oppresses black people and people of color. … There are bodies in the street and people getting paid leave and getting away with murder.”

Twitter then went predictably nuts, with at least one 49ers fan burning Kaepernick’s jersey.
Almost no one seems to be aware that even if the U.S. were a perfect country today, it would be bizarre to expect African-American players to stand for “The Star-Spangled Banner.” Why? Because it literally celebrates the murder of African-Americans.

Few people know this because we only ever sing the first verse. But read the end of the third verse and you’ll see why “The Star-Spangled Banner” is not just a musical atrocity, it’s an intellectual and moral one, too:

No refuge could save the hireling and slave
From the terror of flight or the gloom of the grave,
And the star-spangled banner in triumph doth wave
O’er the land of the free and the home of the brave.

“The Star-Spangled Banner,” Americans hazily remember, was written by Francis Scott Key about the Battle of Fort McHenry in Baltimore during the War of 1812. But we don’t ever talk about how the War of 1812 was a war of aggression that began with an attempt by the U.S. to grab Canada from the British Empire.

However, we’d wildly overestimated the strength of the U.S. military. By the time of the Battle of Fort McHenry in 1814, the British had counterattacked and overrun Washington, D.C., setting fire to the White House.

And one of the key tactics behind the British military’s success was its active recruitment of American slaves. As a detailed 2014 article in Harper’s explains, the orders given to the Royal Navy’s Admiral Sir George Cockburn read:

Let the landings you make be more for the protection of the desertion of the Black Population than with a view to any other advantage. … The great point to be attained is the cordial Support of the Black population. With them properly armed & backed with 20,000 British Troops, Mr. Madison will be hurled from his throne.

Whole families found their way to the ships of the British, who accepted everyone and pledged no one would be given back to their “owners.” Adult men were trained to create a regiment called the Colonial Marines, who participated in many of the most important battles, including the August 1814 raid on Washington.

Then on the night of September 13, 1814, the British bombarded Fort McHenry. Key, seeing the fort’s flag the next morning, was inspired to write the lyrics for “The Star-Spangled Banner.”

So when Key penned “No refuge could save the hireling and slave / From the terror of flight or the gloom of the grave,” he was taking great satisfaction in the death of slaves who’d freed themselves. His perspective may have been affected by the fact he owned several slaves himself.

With that in mind, think again about the next two lines: “And the star-spangled banner in triumph doth wave / O’er the land of the free and the home of the brave.”
The reality is that there were human beings fighting for freedom with incredible bravery during the War of 1812. However, “The Star-Spangled Banner” glorifies America’s “triumph” over them — and then turns that reality completely upside down, transforming their killers into the courageous freedom fighters.

After the U.S. and the British signed a peace treaty at the end of 1814, the U.S. government demanded the return of American “property,” which by that point numbered about 6,000 people. The British refused. Most of the 6,000 eventually settled in Canada, with some going to Trinidad, where their descendants are still known as “Merikins.”
Furthermore, if those leading the backlash against Kaepernick need more inspiration, they can get it from Francis Scott Key’s later life.

By 1833, Key was a district attorney for Washington, D.C. As described in a book called Snowstorm in August by former Washington Post reporter Jefferson Morley, the police were notorious thieves, frequently stealing free blacks’ possessions with impunity. One night, one of the constables tried to attack a woman who escaped and ran away — until she fell off a bridge across the Potomac and drowned.

“There is neither mercy nor justice for colored people in this district,” an abolitionist paper wrote. “No fuss or stir was made about it. She was got out of the river, and was buried, and there the matter ended.”

Key was furious and indicted the newspaper for intending “to injure, oppress, aggrieve & vilify the good name, fame, credit & reputation of the Magistrates & constables of Washington County.”

You can decide for yourself whether there’s some connection between what happened 200 years ago and what Colin Kaepernick is angry about today. Maybe it’s all ancient, meaningless history. Or maybe it’s not, and Kaepernick is right, and we really need a new national anthem.