The big news yesterday was this. Interest rates are shooting up. Asia Times:
<blockquote>
Japan flashed the first warning, with 10-year yields hitting a 30-year high near 3%. [Last] week, US Treasuries followed, with yields reaching levels unseen since 2007 &mdash; traders called it &ldquo;Black Wednesday.&rdquo; Thirty-year yields sit at 22-year highs; 10-year yields are at two-decade highs.
</blockquote>
Longtime Bonner Private Research sufferers (you have our sympathy) will remember 2020, when the 40-year interest rate cycle finally bottomed out. With the US 10-year note plunging below 1%, it was all risk and no reward, the Big Loss waiting to happen.
The Primary Trend of the credit cycle was now headed to higher priced credit, we guessed. And here we are...six years later, the 10-year yield is over 5%, and bond investors are back in the saddle&hellip;demanding higher interest rates to compensate for inflation.
The answer to the question &mdash; what&rsquo;s the big deal? &mdash; is right there. There are now $365 trillion dollars&rsquo; worth of debt in the world. The 400+ basis points between September of 2020 and September of 2026 represent about $14 trillion annually. That&rsquo;s how much more it would cost to pay interest at today&rsquo;s rate on the whole enchilada compared to the rate six years ago.
This brings up the other question you&rsquo;re probably not wondering about. Hauled out of the water and now flopping on the deck is our catch of the day &mdash; the modern warfare/welfare state. A shark fattened on surfers, it&rsquo;s the government we&rsquo;ve lived with all our lives. We&rsquo;re going to cut it open to find out what&rsquo;s inside...and why interest rates matter so much.
Governments come and never quite go. Among the clickety-clackety of high heels and leather soles in our Capitol city, you can hear the echoes of Greek democracies...the Roman Republic...and the Empire. Socialism, Authoritarianism, Oligarchy, Kleptocracy; the marble walls have heard whispers of them all. The welfare state is fairly recent. But the warfare state is as ancient as the bow and arrow. Donald Trump&rsquo;s quest to build a monumental arch is just another way of saluting it.
After the Peace of Westphalia came the glory of the nation state &mdash; one people, one place, and one King...typically united by one common language, one God, one law...and the willingness of young men to be shot dead for them.
America was never a nation-state, despite much yearning and pretending on the part of many political leaders. Its people were diverse. They were governed neither by a dictator nor a monarch. And they could talk nonsense in any tongue they wanted.
<blockquote>
The US was designed for a modest, inexpensive government...leaving people free to build whatever lives they could. Good, bad&hellip;rich, poor &ndash; it was none of the feds&rsquo; business.
</blockquote>
But in this Post-WWII era...this fish morphed from a friendly freshwater carp into an apex, ocean-going predator...a Big Government. The public believes it is in control. Voters think Washington &lsquo;works for us.&rsquo; Or, as Hillary Clinton put it, with a straight face, &lsquo;government is all of us.&rsquo;
The theory seemed to justify the practice. Why not spend money if we were spending it for our own good? Why worry about the debt, inasmuch as we &lsquo;owe it to ourselves?&rsquo; These poor lambs actually believe they run the shearing shed.
But butter costs money. And we don&rsquo;t mean to reveal any state secrets, but the feds are skint&hellip;broke&hellip;busted&hellip;no bread&hellip;like nothing.
Counterfeit dollars gave them plenty to spend. For 40 years &mdash; 1980 to 2020 &mdash; falling interest rates eased the annual carrying cost. And the more they spent, the more The People wanted them to spend...and the greater the damage inflicted on any politician who dared to oppose them. Everybody can see that these pension and medical care programs are dragging the whole country towards a fiscal crisis. But even &lsquo;conservative&rsquo; Republicans, if there are any left in &lsquo;public service,&rsquo; are afraid to propose cutting back.
So&hellip;what happens to these social programs when politicians and central bankers fail to rein them in? They cut themselves back. The politicians continue to pay. But the value of their money goes down...along with the services they promised.
A single percentage point in interest rates takes $3.65 trillion/per year out of the present world economy to pay for the spending of the past. And in the last six months alone the yield on the 10-year note &mdash; the diesel fuel of our financial system &mdash; went up about 100 basis points (1%). William Pesek continues (in the Asia Times):
<blockquote>
Things are likely even worse than the data show. IIF economist Emre Tiftik notes&hellip; &ldquo;as benchmark rates rise, interest expense is set to surge, while structural pressures from healthcare and public pension spending remain largely unaddressed.&rdquo; At the same time, mature-market governments now spend more on interest expense than the world invests in either artificial intelligence, defense or clean energy.
</blockquote>
It&rsquo;s the unforgiving arithmetic of a Ponzi scheme.
Fewer young people are paying into the system. And many of those who should be paying in, are instead taking advantage of the loose, over-generous programs and getting payouts.
Meanwhile, rising interest rates, marching to the unrelenting cadence of death itself&hellip;doom the whole swindle. The feds can still &lsquo;print&rsquo; money...but the bond market &ndash; once burnt, now doubly shy -- sends a bill every time.

dr-hero-img-09-29-26

mobile masthead DR

Hard-hitting economic news and market commentary. Each issue features biting market coverage, expert commentary, and in-depth analysis… along with a warm dose of humor and some skepticism.

Daily Reckoning

The Cadence of Death Itself

The ferry back from Cherbourg to Dublin was pleasant...and restful. The gentle heaving of the boat put us into the deep sleep of a man who can&rsquo;t remember what he did wrong.
But the next day, we picked up a package of snacks for the drive back to our home and strained our eyes to read the contents. Even with our glasses on, up to the light...our arm outstretched or held to the nose...the type might have been used to inscribe the Lord&rsquo;s Prayer on a grain of rice; we couldn&rsquo;t make it out.
Thus begins our bellyaching. Today, we take on the Problems of Our Time, our long litany of quibbles...gripes...and kvetches.
This is not a specific criticism of the snack company. It is practically universal. For some unknown reason, typefaces are getting smaller...harder to read.
That is not all. Stairs seem to be getting steeper. Buttonholes are smaller. Packaging and childproof caps must have been designed by sadists. How many people starve to death trying to open a vacuum packed, ready-to-eat meal?
People seem to be talking faster...and driving faster, too. Film producers seem to be speeding up the action. Sometimes the plots move so fast, we have a hard time keeping up with them. We get to the denouement and have to ask: did we miss the second act?
Even when they speak more slowly, people lower their voices...as if conspiring against us...as if they didn&rsquo;t want to be heard. Even on TV, they mumble and muffle. We have to turn the volume up...or put on subtitles...to understand what they are saying.
Even with old friends and family, we now have to remind them. Where they once spoke clearly and loudly, now they mutter.
&lsquo;Speak up,&rsquo; we say.
On the other hand, in restaurants, where they have stripped away the drapes, upholstery, and rugs, the noise level is atrocious. In the cacophony, we can&rsquo;t make out anything distinctly. And the background music! It is nothing but boom-boom noise, further obscuring any real communication or harmony.
&lsquo;May we have a menu,&rsquo; we ask.
&lsquo;It&rsquo;s on the QR code,&rsquo; replies the young man with the nose ring.
&lsquo;Huh?&rsquo;
When the waiter comes back with an ancient paper menu, greasy and thumbed from the Eisenhower era, it is so worn from wear, you&rsquo;d think it was a directory to the town&rsquo;s bawdy houses.
&lsquo;It&rsquo;s out of date,&rsquo; we are told. &lsquo;So, we might not have the same things. And the prices won&rsquo;t be the same.&rsquo;
&lsquo;Thanks.&rsquo;
When we finally get something to eat, it often has no flavor or smell; the food industry has turned against us too.
But our complaints do not stop there. Where once they put the screw-on caps &mdash; on jars of jam or even water &mdash; so that you could take them off easily, now...they have tightened them up, as if to preserve the mustard formula for future archaeologists. We have to pull out a pair of pump pliers to get them off.
Fortunately, the wine corks still work the way they used to. And with a good corkscrew you could break into Fort Knox. But the winemakers, too, seem to be joining the conspiracy. Even good wines now might have a screw-off cap, rather than a cork.
&ldquo;They should be called &lsquo;screw-you&rsquo; caps,&rdquo; says a cynical neighbor.
Same thing with simple packaging, such as a bag of chips. &lsquo;Tear here,&rsquo; it might say, at a place where it has been reinforced with nylon to make it especially frustrating. Recently, given a bag of pretzels on a short airplane ride, we tried everything to get it open...from no angle would it yield. With no knife or screw-driver available, we gripped it with our teeth to rip it apart.
But no; it was as tough as a Cossack. Finally, with our testosterone count headed to zero, a stewardess came to our aid. Using some trick known only to people under 60, she politely opened the dreadful sack and returned it to us.
Another kvetch: friends are becoming less reliable.
&ldquo;I wrote to John two weeks ago. No reply,&rdquo; you complain to your wife.
&ldquo;Don&rsquo;t you remember?&rdquo; says the keeper of all useful info. &ldquo;He died last year.&rdquo;
A related phenomenon is the way in which we are asked to interact with new technology. You go to the airport. You are expected to check in with a machine...deliver your bags to a machine...and get checked out by a machine before you are allowed on the plane.
Often, the directions barked at you by the machine, trained to be criminally unhelpful, are incomprehensible. &lsquo;Turn your passport in the other direction,&rsquo; it might say. What other direction, you wonder. &lsquo;Enter your six-digit code.&rsquo; What six-digit code?
The problem is even worse when dealing with &lsquo;automated customer service.&rsquo;
&lsquo;Press one if you are being attacked by a grizzly bear.&rsquo;
&lsquo;Press two if you want to refinance your mortgage.&rsquo;
&lsquo;Press three if you want to answer the question: 1 + 2 = ?&rsquo;
&lsquo;Press four if you are about to leave town and can&rsquo;t turn off the toaster.&rsquo;
&lsquo;Press 124 if you have an uncle in the Himalayas who is currently experiencing homelessness.&rsquo;
You realize that none of the options describe your real concern &mdash; you just want to unblock a credit card &mdash; so you press 55 to talk to a Human Being.
After a wait of 15 minutes, a voice, with an almost incomprehensible subcontinental accent, comes on...
&ldquo;Hello, my name is Samira, how can I help you?&rdquo;
Your heart leaps. Finally, a live person...someone who will cut through the millions of possible options and resolve your problem.
You explain.
&ldquo;First, we have to confirm your identity. What color were your first- grade teacher&rsquo;s eyes,&rdquo; she asks.
&ldquo;What...?&rdquo;
&ldquo;What is your favorite way to prepare tofu?&rdquo;
You pass the phone to your wife.
And there...on the highway of life, is an old gentleman. Both hands on the wheel, he looks into the oncoming glare, and curses the damned fools headed the wrong way.

dr-hero-img-09-19-26

Tough as a Cossack

Our daughter sent the news up from South America.
That wasteland that we bought down there has turned into a treasure. Here&rsquo;s the story from the local paper:
<img class="aligncenter" src="https://images.ctfassets.net/vha3zb1lo47k/17f6W9v9a6bf9MoR4xiDCM/28dd96077db0083704535f4c958aad78/dr-img1-09-12-26.jpg" alt="image 1" width="540px" />
&ldquo;Gualfin&rdquo; is our place, the desolate mountain farm we bought twenty years ago, when prices were so low, we couldn&rsquo;t resist. Since then, prices have stayed low. But now we have found El Dorado in our lonesome patch.
Gold, copper, lithium...this &lsquo;worthless&rsquo; land has everything...
And nothing.
<blockquote>
&ldquo;Bill, don&rsquo;t buy a yacht yet,&rdquo; cautioned our lawyer. &ldquo;This is Argentina. The property owner only has the rights to the first 50 centimeters (about 20 inches) of dirt. All the mineral rights belong to the government.
&ldquo;And the government has the right to give a mining concession to your land whether you want it or not.
&ldquo;Besides, what they are really looking for is lithium. The rest is probably not worth mining. Your place is too far and too inaccessible. So, unless the deposits are really good, no one is going to bother.
&ldquo;The exploration company is digging down now to see if the lithium salts are worth a major mining investment.&rdquo;
</blockquote>
Bummer!
In three sentences, we had gone from being a rich mine owner back to being a poor scribbler. And now we will have huge trucks and excavators interrupting our views.
Meanwhile, we keep our eye on Argentina, partly because we have our daughter there...and partly because Argentina is running one of the most fascinating experiments in world history.
Democracy favors the blowhard, the con man and the big spender. Especially the large democracy. People cannot know their leaders personally...and they do not have the time or the experience to evaluate policies intelligently. All they have to go on are soundbites, concocted &lsquo;narratives&rsquo; and promises.
The press, too, advertises itself as a watchdog. But it is really more of a lapdog, yapping only to fend off critics. In its simpleminded universe, there are problems...and there are solutions. Most of what it calls &lsquo;news&rsquo; merely repeats the press releases when the &lsquo;solutions&rsquo; are announced...and then, when the program fails, it barely mentions it.
<blockquote>
Most elected governments spend too much, borrow too much, and then &lsquo;print&rsquo; too much money. The result is inflation and insolvency, often garnished by war.
</blockquote>
Argentina served up the full menu for decades. But along came Javier Milei with the radical idea that a government should be limited and spend no more than it collects in taxes. As far as we know, nothing like it has been attempted in modern times...perhaps with the exception of Roger Douglas&rsquo;s more modest program in 1980s New Zealand, which ended with mixed reviews.
Instead, democratic governments normally just get larger, more inept and more corrupt &ndash; until war, revolution, or economic catastrophe intervene.
So, how&rsquo;s it going on the pampas? So far, so good...
Inflation is still going down, the BA Times:
<blockquote>
Inflation in Buenos Aires City slowed to 1.7% in August
Price hikes in the capital slowed for the first time in two months
</blockquote>
The boom continues, too, with the best auto sales in twenty-five years. And Argentina is expected to have the highest economic growth rate in Latin America next year.
But as in New Zealand, the results are not always immediate or easy to spot. While the inflation rate goes down, prices are still going up...albeit at a much slower rate. The problem, during this transition period, is that they are going up faster than wages.
People who are used to a crooked system need time to adjust to a straight one. Milei eliminated the government&rsquo;s deficits. That meant cutting back on its outlays. But a lot of voters in the poorer barrios relied on subsidies for their daily bread. Consumption in some neighborhoods is actually going down as wages fail to keep up with price increases.
While the public still seems willing to give Milei&rsquo;s reforms time to work their magic, political pressure is growing. That may be why Milei has pulled the Falklands out of the drawer. The public is patient. But patience is a wasting asset. Patriotic claptrap has a longer shelf life. Milei may be hoping it will give him more time for his reforms to work. France 24:
<blockquote>
Argentina&rsquo;s Milei escalates Falklands dispute in sovereignty push against Britain
</blockquote>
Daily Digest:
<blockquote>
Milei exploits Trump&rsquo;s thirst for revenge as he rekindles claim on Falklands
</blockquote>
&ldquo;Your country was not there to help me,&rdquo; said Trump to Britain, referring to the UK&rsquo;s reluctance to join his blockade of Iran&rsquo;s blockade, following the US bombing of Iran and the killing of its leader. Trump says the US will &lsquo;reconsider&rsquo; its support for Britain&rsquo;s claim to the islands.
What happens next?
We&rsquo;ll wait for the news. And we&rsquo;ll continue to enjoy our twenty inches of topsoil; it&rsquo;s all we&rsquo;ve got.

dr-hero-img-09-12-26

Twenty Inches of Topsoil

Want to know where the US is headed? Want a peek at the future?
Here it is: more inflation. More than you expect. We depend on rising interest rates and the &lsquo;bond vigilantes&rsquo; to ride herd on inflation. Instead, they will drive up the real costs of moderate inflation&hellip;leaving hyperinflation as the likely outcome.
Our WWII debt was disarmed by inflation. Slow and steady, like termites eating through untreated wood, it cut about two-thirds of the real value of the debt by the 1970s. People hardly noticed. Why not make it &lsquo;work&rsquo; for us again?
And you might think &mdash; or POTUS might believe &mdash; that we could stomach a few years of 10% inflation and thereby wipe out a big piece of all the US national debt. Smooth. Reliable. 10% annual price increases. Wouldn&rsquo;t it be worth it?
Forget it.
Inflation, like a traffic accident or a mugging, only really &lsquo;works&rsquo; when you don&rsquo;t see it coming. Otherwise, lenders and consumers take a different route home. They buy before prices rise...and demand higher interest rates to protect themselves from future losses. The higher interest rates add to the carrying cost of debt, chill the economy and lower the feds&rsquo; tax receipts &ndash; making inflation much less effective.
Inflation has to be a surprise. When the surprise disappears, the authorities either stop inflating...or they go &lsquo;full Weimar&rsquo; into hyperinflation.
And the &lsquo;bond vigilantes,&rsquo; those heroes who pressure the feds to keep inflation under control, may actually make hyperinflation more likely than you think.
Suppose Scott Bessent and Kevin Warsh held a joint press conference, maybe on Halloween or April 1st. Imagine that they announced &lsquo;An End to the US Debt...we&rsquo;re going to let inflation run at 10% per year until we get this monkey off our backs.&rsquo;
What would people do?
Would they roll down their windows and put their purses where they could be easily snatched? Would they sit contentedly, perhaps holding hands, as the feds take away their retirement money? What would landlords do; offer 10-year leases at today&rsquo;s rates? How about publishers? Would they offer subscribers a chance to &lsquo;lock in&rsquo; today&rsquo;s price for the next ten years?
And the bond vigilantes? What would they do?
They&rsquo;d dump their Treasury debt...demanding interest of 15% or 20% to offset the inflation losses they see coming. But if the feds had to pay so much more in interest &mdash; even more than they gained from their &lsquo;inflation tax&rsquo; &mdash; the grift wouldn&rsquo;t work at all. The whole point is to allow the feds to spend more money. But once people expect more inflation, the actual spending power of the government goes down, not up. In effect, when the &lsquo;bond vigilantes&rsquo; are in the saddle, inflation no longer &lsquo;works.&rsquo;
The point is obvious. When you drive through a bad neighborhood, you roll up your windows and lock your doors. You don&rsquo;t let yourself get robbed &mdash; not if you can help it.
<blockquote>
Even without an official announcement, people can read the handwriting on the wall. As long as the federal government is running $2 trillion deficits, it might as well post its destination like a cross-town bus. No need to spell it out. The federal debt pile gets bigger. Interest rates go up. Inflation too.
</blockquote>
Argentina was faced with the choice two years ago. Its annual inflation rate had soared over 250%. It looked like it might soon go into hyperinflation. Voters knew what that would be like. They recalled 1989-1990, when the inflation rate went to 2,600%. They didn&rsquo;t want to do that again.
Americans have not been exposed to hyperinflation. They have no memory of it and no immune defenses against it. So, it doesn&rsquo;t take a genius to see where this leads. Members of Congress may fondly recall those glory years &mdash; 1980-2020, when they could borrow and print at will...as interest rates steadily went down. Almost none of them understands why inflation no longer works...or remembers an episode of hyperinflation. In America, it is almost unthinkable. And you certainly won&rsquo;t win an election by thinking about it. Besides, rising prices can still be blamed on other people. Cuts to welfare or the Pentagon cannot.
Here&rsquo;s what will happen. The feds will allow inflation to &lsquo;run hot.&rsquo; Interest rates will go up. They&rsquo;ll add fuel (more deficits!)...and let it burn even hotter. And then, consumers will anticipate higher rates of inflation. It will be as if the feds had stood on the Capitol steps and announced their intention to destroy the dollar completely. Households will want to get rid of it like a hot potato &mdash; sending the inflation rate even higher. Investors will pull their money out of bonds, out of the dollar and out of the country.
Where, when, or how &mdash; exactly &mdash; it earns its &lsquo;hyper&rsquo; prefix, we can&rsquo;t say. But it will be a big surprise to us all.

dr-hero-img-10-06-26

An End to US Debt

Reuters:
<blockquote>
Japan&rsquo;s benchmark 30-year bond yield hit the 3% level for the first time since 1996 on Tuesday amid a broad-based global bond sell-off
</blockquote>
MarketWatch:
<blockquote>
From the UK to Japan, bond yields are jumping as US bonds tumble
</blockquote>
Sometimes, the most obvious problems are the easiest to solve. An alcoholic has problems. His wife doesn&rsquo;t understand him. His boss doesn&rsquo;t like him. He needs a new car. His head aches and his friends desert him.
But his major problem: he drinks too much. This is very easy to correct. Just stop drinking. The simplicity of it makes it almost unbearable...and unthinkable.
Japan has been on a bender for 35 years. Its stock market bubble popped in 1990. Its feds have been pumping like crazy ever since, trying to get the buzz back on. They&rsquo;ve inflated Japanese government debt to the largest in the world &mdash; at 250% of GDP, twice the US level &mdash; hoping to revive those glorious, intoxicating go-go years of the 1980s. That was when Japan Inc. was the envy of every business school in the world.
Back then, in the &lsquo;80s, Japan&rsquo;s industries &mdash;Mitsubishi, Toyota, Honda &mdash; dominated the financial pages. Then, after the crash, Japan continued to lead the world, but in borrowing. And now Japan has one massive hangover.
When you stop drinking your recovery begins almost immediately. But as Marc Antony said over the body of Caesar, &lsquo;the evil that men do lives after them.&rsquo; You can stop spending, but the shadow of the past -- debt -- stays with you.
And Japan is not the only one living in the shade of debt. It&rsquo;s been party time, worldwide, ever since Alan Greenspan revealed his &lsquo;put option&rsquo; for the stock market. Free drinks. No closing time. Stock prices could go up all they wanted; but if they began to fall, the Fed would cut rates to catch them.
As a result, world debt is estimated at $329 trillion &mdash; or more than three times GDP. The US is right in line with more than $100 trillion in debt...or, about three times GDP. That doesn&rsquo;t include the $15 trillion or so the feds are legally obligated to pay their own government retirees.
The dipsomaniac may be jolly or morose...rich or poor...smart or dumb. But until he gets that monkey off his back, he&rsquo;s going to have trouble.
The US has problems too. Iran. Canada. A &lsquo;heat dome.&rsquo; Water shortages. Hurricanes. Illegal immigrants. Obstreperousness overseas. Lawlessness at home. Mosquitoes. But the big ape on the back of the US is obvious. It&rsquo;s the one neither political party wants to talk about. And no wonder; they put it there.
It&rsquo;s the debt, stupid-- the price of all the dumb &lsquo;problem solving&rsquo; of the past. Who wants to remember them? Old girlfriends. Empty bottles and cigar stubs. Yesterday&rsquo;s newspapers. The Gulf War of 1991...Obama&rsquo;s record $1.4 trillion deficit in 2009, LA riots of 1992...Hurricane Andrew...Oklahoma City bombing...Monica Lewinsky?
All have faded from public memory...but the bills, great or small, are still unpaid. They are among the $40 trillion worth of accumulated federal debt that must be serviced every year, for ever and ever, Amen. At just 5% interest, the annual charge will soon come to $2 trillion per year, whether anyone remembers what the money was spent on or not. Federal tax receipts last year were $5.2 trillion. So, nearly half of the feds&rsquo; revenue is now headed to pay for things that were always a waste of money...and now, are largely forgotten.
<blockquote>
Politicians don&rsquo;t want to talk about it because solving the debt problem will hurt. Like cutting off a gangrenous finger without anesthetic or going &lsquo;cold turkey&rsquo; in an asylum, neither party has the stomach for it. The voters will howl. The press will harrumph. Wall Street will quake. And, most likely, some fringy politician will take charge...and start a war to take our minds off of it.
</blockquote>
You can ignore a debt build-up; for a long time, it will seem &lsquo;manageable.&rsquo; But then, after a party, you end up in a ditch. Drying out (aka deflation) won&rsquo;t be pleasant. People only do it because the alternative is worse.
A debt hangover is hard to shake off. Short term interest rates are lower...and closer to &lsquo;cash.&rsquo; So, the feds moved more of their borrowing to the short end of the yield curve. This leaves them needing to &lsquo;rollover&rsquo; their debt more frequently &mdash; even as interest rates go up. Even if they balanced the budget tomorrow, they&rsquo;d still need to refinance more than $1 trillion per month.
A report from Armstrong Economics tells us that $29 trillion will be borrowed this year:
<blockquote>
Governments and corporations are expected to borrow a record $29 trillion from global bond markets in 2026, according to the OECD. That is $4 trillion more than in 2024 and twice the amount borrowed only ten years ago. This is the Ponzi structure underlying modern government finance.
</blockquote>
Carlo Ponzi might be proud. Practically all of the world&rsquo;s post-war western governments adopted his model.
But where are we going with this? Where else, the same place it took Ponzi himself: to Hell in a handcart! Ponzi died in a charity ward in Brazil, with only $75 to his name.
And now, there is no way a society can devote half its government&rsquo;s revenues to paying for the bad investments of the past...at least, not indefinitely. And the most likely &lsquo;solution&rsquo; is the most dangerous and painful one &mdash; inflating away the debt...which is like curing the hangover with a bottle of gin before breakfast.
But we shouldn&rsquo;t be too surprised if a more audacious leader &mdash; such as Jean-Luc Melenchon in France &mdash; comes along with a more radical plan. The French leftist proposes to simply renege on a portion of French debt.
And maybe that wouldn&rsquo;t be such a bad idea...
Stay tuned...

dr-hero-img-09-05-26

It’s the Debt Stupid, Part Duh

We begin this week&rsquo;s perambulations with a stroll into the future.
So far...the Bubble in the US is broader than any in history. It has been inflating everything it touched for the last 30 years.
All bubbles pop, of course. How they pop is the confusing whirlwind we enter today.
But don&rsquo;t worry. Even in the worst crash, real wealth doesn&rsquo;t disappear, it just changes hands. When the stock market goes down, those with stocks have less paper wealth...and less of a claim on real wealth. They are &lsquo;poorer.&rsquo; That leaves those without stocks relatively richer. They have a bigger claim on the real goods and services the economy produces.
The feds and their elite cronies have a good racket going...diddling markets so as to shift more and more wealth away from the public and towards themselves. They own most of the capital assets...and they control the US budget. Pressuring interest rates lower, and backing up the stock market with bailouts and &lsquo;put&rsquo; options...they&rsquo;ve gotten richer and richer. As we saw last week, at today&rsquo;s prices the stockholding class can theoretically buy twice the GDP...and have $10 trillion left over.
It wasn&rsquo;t capitalism that made them so rich; it was a corrupt money system. And if the dogs of capitalism were unleashed, they&rsquo;d have their fake money fortunes for dinner. Interest rates would be set by honest savers and borrowers &mdash; not by Fed policy decisions. Prices would be determined by buyers and sellers; the budget would be balanced; the debt would be cleaned up; the troops would come home; inflation would disappear; and the Baltimore O&rsquo;s would win the World Series.
But of course, we&rsquo;re dreaming.
Sticking to the real world&hellip;
Our high confidence guess is that the bubble will deflate. Everything will fall in price. Then, the feds will panic. They will do &lsquo;whatever it takes&rsquo; to stop markets from doing their work &mdash; with more fake money, lower interest rates, yield curve control, quantitative easing. And probably some tricks we haven&rsquo;t heard of yet.
After an initial sell-off, gold will go up. It will sniff out what is coming &mdash; more inflation. Other real asset prices too &mdash; from hot dogs to hotels &mdash; will get a whiff of the coming price hikes. Consumer prices will rise as &lsquo;inflation expectations&rsquo; increase.
The feds really only have one tool &mdash; fake money. In a crisis, they will produce more of it...a lot more. And, in addition to the quantity of money coming into the economy, there&rsquo;s another key inflation variable: the velocity of money. A dollar spent two times in a year is counted twice.
When people think the feds are going to print money, the dollar becomes a hot potato. They aim to get rid of it as soon as possible. Sales go up in the short run. In the longer run, the economy is destroyed.
<blockquote>
And here&rsquo;s an important addendum. We say &lsquo;inflate or die.&rsquo; But those are just policy choices. In the long run, you can inflate all you want. The bubble will still die &mdash; a later, more gruesome death.
</blockquote>
In the fight between markets on one side...and politicians, grifters, fixers and central planners on the other...markets always win, eventually. They win by deflation.
Even in an inflationary blow off &mdash; with prices soaring &mdash; real prices fall. Consumer prices rise, in nominal currency. But gold &mdash; real money &mdash; typically rises even more...so that in gold terms, real things actually become cheaper. Prices deflate in real terms.
Observers in Germany&rsquo;s record-setting hyperinflation remarked that foreigners were able to use dollars &mdash; then, backed by gold &mdash; to buy things at absurdly low prices. By November, 1923, a dollar was equal to 4.2 trillion marks. This made American visitors trillionaires (in marks) allowing them to buy whole houses for the price of a magazine subscription. In real terms, prices had deflated down to almost nothing.
We witnessed it, ourselves, in Argentina. In pesos, consumer prices more than doubled every twelve months...but dollars (even with a dodgy dollar) made them cheaper than ever. We would go to a restaurant, for example, and feel guilty about paying so little for such a good meal.
The same phenomenon is already taking place in America, too. Housing has gotten much more expensive, right? And the stock market is much higher too, right? But looked at in terms of gold, stocks are less than half of what they were worth in 1999...and the Case-Shiller Home Price Index, expressed in gold, shows house prices down about 80% over the last quarter century.
<img class="aligncenter" src="https://images.ctfassets.net/vha3zb1lo47k/2Mg0Cl8YHHMQQISsBVJVcf/8cde173db63e9c0a7864983e4984752f/dr-img1-09-01-26.jpg" alt="image 1" width="540px" />
The Case Shiller Home Price Index, in gold terms, has fallen around 80% in the last 25 years.
In real terms, all bubbles deflate...but you need real money to see it.
P.S. Find more of Bill&rsquo;s writing at <a href="https://www.bonnerprivateresearch.com/">Bonner Private Research.</a>

dr-hero-img-09-01-26

All Bubbles End in Deflation

Our question for today is: Have we reached Peak Bubble? And if so, what happens next?
The answer is important. Because our top goal is to avoid taking the Big Loss. And the Big Losses come hard and fast at the top of a bubble. And like a sheriff with a summons, they can be hard to dodge.
As long as you can avoid the Big Loss, you&rsquo;re still in the game. Then, you can let time and luck do their magic. Unglamorous and slow, it&rsquo;s not like buying the &lsquo;next Nvidia.&rsquo; But it works better: buy profit making companies when they are reasonably priced; sell them when they become unreasonably over-priced.
So simple, you could ink it on your palm. So, let&rsquo;s presume we are at...or near...peak bubble. What to do now?
When a bubble pops, the immediate result is deflation. Prices of key bubble assets go down. Later, everything goes down. The damage rarely stays on Wall Street. Businesses can no longer raise money. Projects are cancelled. People lose their jobs and their incomes. They have less money to spend so &lsquo;demand&rsquo; goes down...and with it go prices for almost everything.
<blockquote>
People postpone their vacation plans. They shove plans for a beach house into the desk draw. And after spending years discussing the relative merits of Perrier compared to San Pellegrino, they drink from the tap!
</blockquote>
But what about the debt? What about the Fed? Where&rsquo;s that inflation we&rsquo;ve been warning about for the last 27 years?
So glad you asked.
The natural tendency of a bubble is to deflate. Typically, debt deflates with it. The same business that finds spiders spinning their webs in its entryway...even despite its &lsquo;Going Out of Business Sale&rsquo; sign...also finds it hard to repay the bank. And the corporation that sold bonds to raise capital for investments that never panned out finds it must default on its coupon payments. Debt shrinks along with everything else. People go broke. Businesses declare bankruptcy. And the total of debt, payable and outstanding, goes down...along with the pile of &lsquo;paper&rsquo; assets it once supported.
This is as it should be. Bad investments are purged. More important, so are bad ideas. In 2000, for example, some internet businesses were destined to be great successes. But not every crackerjack dotcom dream would be successful. And no, information does not &lsquo;want to be free,&rsquo; as Michael Saylor claimed. And no, no...the internet did not cause the economy to lift-off into escape velocity, unbound by the old rules of gravity and compound interest.
The truth comes out. That&rsquo;s what busts are for. You can&rsquo;t really make people richer by printing more pieces of paper or lowering their interest rates. Those truths are only whispered softly at the beginning of a bubble. Later on, they speak with a stentorian voice &mdash; after the bubble blows-up.
<blockquote>
The collapse of a bubble is the collapse of prices. And the way down follows the same path as the way up, but faster. Stocks lose as much as half their value in just a few days. Real estate is marked to market much more slowly...but the direction is the same.
</blockquote>
Bond yields, however, follow a special route. At first, they rise sharply.
In a major correction, everybody gets scared.
Every price defines a relationship between those who are short and those who are long. Who owes what to whom? And with prices in free-fall, the questions become more urgent...the voices more desperate. The lights are still on at the bank&hellip;is it still solvent? Why isn&rsquo;t the hedge fund answering the phone? Damn...I wish I had retired and sold those options when I had a chance. They couldn&rsquo;t go lower, could they? Is it a buy? No...SELL!
Trust declines as yields and interest rates shoot up. A good suit is no guarantee of solvency. &lsquo;Who will still be upright when the dust settles?&rsquo; investors wonder.
Then, as the panic burns itself out, yields begin to go down. A boom produces higher rates. In a bust, rates go down. That is the natural pattern. No Congressional approval needed. As an economy heats up, demand for loans increases. As it cools off, people become much less expansive...more wary...and unwilling to sign anything. They hold cash tight&hellip;and let go of cabin cruiser.
Booms bring on innovations and debt. Corrections (busts) clear away those that don&rsquo;t actually work.
That is the way it&rsquo;s s&rsquo;posed to work. And it does work that way...sort of...for a while. It&rsquo;s either &lsquo;inflate or die.&rsquo; Either the bubble keeps expanding &mdash; or the air goes out...it deflates...and prices go back down.
Then come the feds. Like the arsonist who puts on his firefighter coat and directs the hoses....they rush into the market to restore order. Their aim is to protect the big banks...and make sure that neither they, nor their insider cronies, take the losses they deserve.
And then&hellip;it&rsquo;s a whole new ballgame.
Stay tuned.
Find more of Bill&rsquo;s writing at <a href="https://www.bonnerprivateresearch.com/">Bonner Private Research</a>.

dr-hero-img-08-26-26

Truth Will Out

Today, like a hick at a county fair, we wander through BubbleLand. Our mouth open, we gawk and wonder. We&rsquo;ve been hunting deer on the &lsquo;back 40&rsquo; for years, we ought to be able to hit a few targets and win a stuffed teddy bear, no? Is the &lsquo;Naked Lady&rsquo; really a lady? Would a sane person ride on the &lsquo;Death Swirl?&rsquo;
With so many bright lights and carnival barkers, it&rsquo;s hard to stay focused on what really matters.
The war with Iran? AI? Midterm elections? Rising interest rates?
We don&rsquo;t know which of these will bring down the tent. But one of them probably will. On Wednesday, in the early morning, interest rates looked like the frontrunners. MarketWatch:
<blockquote>
The U.S. Treasury on Wednesday will be asking investors to hand over another $16 billion for 20 years to help finance the nearly $1.8 trillion U.S. budget deficit so far this year.
The answer from investors probably will be &ldquo;fine, but you need to pay us close to a 5.28% yield&rdquo; &mdash; the going rate for existing 20-year Treasury debt on Tuesday, and the most it&rsquo;s cost Washington to borrow this way since the 20-year tenor was auctioned six years ago. With long-term Treasury yields hovering at multi-decade highs, traders have begun asking the uncomfortable question: How much will the U.S. need to pay to convince the world to keep lending it money?
</blockquote>
And here&rsquo;s Barron&rsquo;s:
<blockquote>
30-year yield rises to highest level since 2007 as oil and Treasury supply bite bonds
</blockquote>
The Wall Street Journal is on the case too:
<blockquote>
Bonds are getting hammered, and Wall Street says the rout won&rsquo;t end anytime soon
</blockquote>
Really? But the bond rout ended before we finished our breakfast. CNBC:
<blockquote>
Treasury yields pulled back on Wednesday from multi-year highs seen earlier this week, with the long end of the curve dropping sharply after the Treasury Department announced an upscaled buyback operation of U.S. long-term debt.
The Treasury Department said it will double the size of its government debt repurchases, lending support to longer-dated bonds.
</blockquote>
&ldquo;Repurchase?&rdquo;
With what money?
The word hides its true meaning. In effect, the feds are going to &lsquo;print&rsquo; money in order to buy their own debt, lowering yields...and further inflating the economy. Gold knew what it meant immediately. At 8 am Wednesday, it was selling for $4,416 an ounce. An hour later, the fellow with 10 ounces of gold was $1,000 richer.
And by the end of the day, the dots had come together in a preview of America&rsquo;s financial future. Reuters:
<blockquote>
&lsquo;US debt crosses $40 trillion threshold after doubling under Trump and Biden&rsquo;
</blockquote>
The feds can&rsquo;t stop spending. And they can&rsquo;t afford to let interest rates rise. Look for more intervention...more debt, and a dollar that shrinks like cotton candy.
Under our financial Big Top, there are two things of most immediate concern. First is the amount of debt hanging over us. Second is the interest rate we have to pay on it. As the two of them rise, so do the odds of major blow-up. The feds can delay it by &lsquo;repurchasing&rsquo; their own debt...but they just make it worse, later.
But let&rsquo;s continue our stroll through BubbleLand and keep our eyes open.
Here&rsquo;s some &lsquo;good news.&rsquo; Charlie Bilello:
<blockquote>
S&amp;P 500 Q2 earnings are now on pace to rise 50% YoY, the highest growth rate since Q2 2021. And the 29% upside surprise in Q2 earnings versus expectations at the start of earnings season is officially the biggest upside surprise on record.
</blockquote>
Don&rsquo;t get too excited. These are not real &lsquo;earnings.&rsquo; They are bubble earnings. They come from investments the &lsquo;hyperscalers&rsquo; have made in other AI companies. And they&rsquo;re expected to keep coming. Earnings for next year are estimated at twice the &lsquo;normal&rsquo; 15% rate. So far this year the S&amp;P 500 has risen 15% &mdash; again, twice the normal level. But so many companies have spent so much money on AI that the &lsquo;Death Swirl&rsquo; threatens to topple over.
The top ten companies in the S&amp;P are all dependent on the AI bubble. Sandisk, Dell, Seagate and Micron all have gone up more than 200% this year. And overall, stocks are so expensive that the na&iuml;ve, long term-oriented investor, depending on dividends, would wait a hundred years to break even. This is not a boom based on actual revenues...but on the hope of more capital gains.
Any Wall Street hustler worth his suspenders knows what to do next. That is the thinking behind what might be another Peak Bubble signal that appeared last week. The Street:
<blockquote>
Anthropic&rsquo;s $2 trillion IPO dream rests on staggering revenue bet
</blockquote>
Anthropic now prepares the biggest IPO in history. When investors are eager for &lsquo;pie in the sky&rsquo;...give it to them a la mode.
Editor&rsquo;s note: Find more of Bill&rsquo;s writing at <a href="https://www.bonnerprivateresearch.com/">Bonner Private Research.</a>

dr-hero-img-08-22-26

A Stroll Through BubbleLand

A quick weather alert. All week long, our computer &mdash; somehow in league with the French authorities &mdash; has alerted us to an Extreme Heat Advisory.
Today, the temperature will be pushing up to 100 degrees. Tomorrow, too. The Mirror:
<blockquote>
Extreme heat is gripping the UK and Europe this summer, with nearly half of England and all of Wales officially in a drought. England&rsquo;s Environment Agency and Natural Resources Wales announced their driest months on record, marking the third time they&rsquo;ve been broken over the past five years. It comes in the wake of four record-breaking heatwaves since May, which Chloe Brimicombe, a climate scientist at the University of Oxford, explained that adaptation to and mitigation of climate change are urgently needed. &ldquo;We need better long-term planning.&rdquo;
</blockquote>
The Washington Post:
<blockquote>
Few places around the world have experienced more unusual heat and drought recently than Europe. A record late-spring heat dome was a harbinger. Then the heat domes just kept coming.
These extreme conditions have turned once-lush landscapes dusty brown. Rhine and Danube rivers have been particularly affected.
</blockquote>
Is this just the random movement of weather patterns? Or does it bespeak a more profound change...towards the final furnace?
We don&rsquo;t know...but here in France it feels End Times-ish. Scorched earth. Zombie trees, still standing but dead to the heartwood. Ground so dry the grass crunches like glass beneath your feet. And people, like the remnants after the fall of Rome, cower in their houses afraid to show their faces in the light of day.
A heat apocalypse? We don&rsquo;t know. But a summer rain is in the forecast for Saturday.
Meanwhile...
There is the odor of decay on Wall Street too. It smells as though the AI brew may be getting ready to turn.
There are three main groups in the AI complex. There are the chipmakers &mdash; Nvidia leading the pack, followed by Broadcom, Micron, AMD, ASML and TSMC. They are the pick and shovel sellers. Together, they are said to be worth $11 trillion. But they have only free cash flow of $236 billion. The theoretical investor, if he could buy the whole group and pocket the FCF, could expect to get paid back by the year 2073.
That assumes that no new tech comes along in the next half-a-century to compete with them...and no further capital spending (no new innovations requiring investment) are necessary. We might as well assume that the Baltimore Orioles will win the pennant each year for the next half a century too. But at least we see, once again, how hard it is to make money from an investment when it is over-priced at the get-go.
What sends the chipmakers into orbit is spending by another piece of the confabulation &mdash; the &lsquo;hyperscalers&rsquo; &mdash; Microsoft, Alphabet, Apple, Oracle and Meta. These are companies that survived and grew fat after the last big boom/bust cycle in tech. They are worth, together, about $16 trillion. Now, instead of sharing out earnings with stockholders, they spend their money on capital investments (Capex) trying to stay on top of the latest tech innovations. Which just goes to show how hard it is to make money in new tech at all; there is always newer tech.
<blockquote>
Their total Capex for the next twelve months is said to equal to nearly 3% of GDP. And there&rsquo;s the trick. The money, flowing into the AI cluster, flatters sales and profits for them all. Capital goes into one company...and is taken as income by another. The casual investor sees the whole whoop-de-doo as a boom...and is desperate to get a ticket before the show leaves town.
</blockquote>
Finally, there are the explorers and miners themselves...OpenAI, Anthropic, xAI among the most prominent. In turn, they contract with the chipmakers and hyperscalers...providing more &lsquo;proof of concept&rsquo; and further exciting the AI bulls.
Behind them all is the hunch that if we were to reduce the cost of knowledge...thereby eliminating the salaries of the people who have it...we&rsquo;d all be a lot better off.
But it&rsquo;s all very well to make something cool. Then you have to sell it. Henry Ford doubled his auto factory wages...giving ordinary workers the money they needed to be automobile owners. In the AI revolution, however, instead of doubling their employees&rsquo; wages, AI is firing them. Forbes:
<blockquote>
Companies Are Firing Workers To Fund AI That Isn&rsquo;t Working Yet
</blockquote>
In the Dot.com craze, investors believed internet traffic would double every 100 days. So, presumably, would sales. Success depended on getting as many &lsquo;eyeballs&rsquo; as possible.
But now AI may actually pluck out the &lsquo;eyeballs&rsquo; it needs to pay for itself. Eventually, as in all other big tech revolutions, the displaced workers will find new sources of revenue. Perhaps, as in ages past, they will rent themselves out as grooms, gardeners and chamber maids on the vast estates of the AI impresarios. But between the pink slip and the livery, it could be a rough transition.
And while the eyeball base may be shrinking, we are supposed to believe that the big AI &lsquo;labs&rsquo; have a tollbooth on the road to tomorrow. This is not an impossible thing. The costs of entry into the business are so high that, like oil retailers, there are naturally only a few of them. Or, citing reasons of &lsquo;national security,&rsquo; the feds might take charge of the turnpike themselves. The big tech bosses stood shoulder to shoulder with Donald Trump at his second inauguration. Could some public/private backroom deal be in the works, forcing AI traffic onto a few controlled highways &mdash; with regulated tollbooths? Maybe.
But every bubble eventually makes eye contact with its pin. The AI craze is facing all the prickly thorns that typically doom an investment mania. Most important, whatever trickle of profit the industry eventually produces will be dwarfed by the torrents of investment capital that have flooded in to get it.
After the high-water mark in 1999, Microsoft, a genuine success story, saw its stock price cut in half. For Intel investors, the pain was much worse. The stock did not recover until this year &mdash; more than a quarter of a century after the bust. And JDS Uniphase investors, just to take a name from one of the tombstones, lost 97% of their money.
The pin is patient. But we doubt AI investors will do much better.

dr-hero-img-08-15-26

Wall Street’s Odor of Decay

AI is changing the world. But not necessarily how you expect.
Like previous investment fevers &mdash; from the California Gold Rush to the Dot.com Bubble &mdash; it follows a well-trod path. The short version is this: speculators get excited...their early &lsquo;investments&rsquo; raise prices...the companies spend money on chips and other &lsquo;picks and shovels&rsquo;...the spending is mistaken for end demand...and so much money stampedes in that earnings get trampled and can never justify the capital investment.
You can have all the intelligence you want &mdash; artificial, organic, instinctive...any kind you want &mdash; it&rsquo;s not likely to change the pattern.
After the discovery of gold at Sutter&rsquo;s timber mill in 1848, in rushed the miners, speculators, and suppliers. Claims were staked. Miners outfitted. With new money coming right up from California&rsquo;s earth and streams, prices rose. In today&rsquo;s dollars, a shovel cost more than $1,000. But then, when the easy surface deposits had been depleted, shovels were soon in over-supply.
And what&rsquo;s this? Today&rsquo;s nuggets &mdash; pulled from the dirt of our fake money credit market &mdash; are not as easy to get as they used to be. CNBC:
<blockquote>
The 10-year Treasury note yield rose at the start of the week... The benchmark yield gained more than 4 basis points to 4.701%, while the 30-year Treasury bond traded up more than 3 basis points to 5.242%. The 2-year Treasury note yield rose more than 3 basis points as well to 4.241%.
</blockquote>
Is this the beginning of the &lsquo;bust&rsquo; phase for the AI Rush?
First, let&rsquo;s look at the &lsquo;theory&rsquo; underlying this massive bubble in AI-related investment.
The dot.com bubble was based on the idea that information could be transferred cheaply and quickly, electronically, thus boosting GDP. And with information so readily available, there was no excuse for people to make so many mistakes. Just search the internet for the right info. The &lsquo;right&rsquo; answer was there somewhere. Eliminating bad investments would make the remaining uses of capital much more profitable. Like taking the dumb kids from the third grade...average test scores would go up.
It turned out that while the internet could deliver much more information and entertainment, it was promiscuous. Among the useful intel were millions of pages of drivel, click-bait, fake news, and idle entertainment. GDP growth, post 2000, went down, not up. Stupidity, bad taste and porno went up, not down. And did the internet avoid bad investments?
The worst single use of capital in the Internet Era was the attack on Iraq. Five trillion dollars down the drain. Anyone with an internet connection could have found that there were not likely to be any serious &lsquo;Weapons of Mass Destruction&rsquo; in Iraq. Nor was Iraq a sponsor of terrorism. Nor did it pose a plausible threat to the US. But even access to 3,000 years of military history &mdash; disaster after disaster &mdash; did nothing to stop it.
So, now we put the question to AI...did the US have a good reason for its attack on Iraq? Claude:
<blockquote>
No. Containment and inspections were working, and the war&rsquo;s own advocates later conceded the central premises were wrong.
</blockquote>
And now, we have a source not just of info, but of judgement &mdash; knowledge itself. LLMs (Large Language Models) are clever. They will do your thinking for you. No more &lsquo;mistakes,&rsquo; right?
AI can now replace the bottom and middle rungs of &lsquo;knowledge work.&rsquo; Those jobs would otherwise be taken by young, aspiring &lsquo;white collar&rsquo; strivers, the very people whose earnings were supposed to keep federal debt from spinning out of control.
Also afoot are plans to bring in even more capital&hellip;and make AI even more accessible. Here is the summary from Grok:
<blockquote>
On or around August 10, 2026, Nvidia announced memorandums of understanding with Apollo Global Management, BlackRock, Blackstone, Brookfield Asset Management, Goldman Sachs, KKR. The goal is to set up independent financing platforms that aim to mobilize more than $500 billion in third-party capital over time. This capital would help Nvidia&rsquo;s customers (AI labs, enterprises, hyperscalers, and AI cloud providers) finance GPUs, systems, and data-center buildouts without relying solely on their own balance sheets.
</blockquote>
Whatever bone it is given to gnaw on, the value added is the &lsquo;judgement.&rsquo; And there you see the fatal flaw.
AI has no divine source of truth. It merely rests, like an old boot on a trash heap, on words compiled over centuries, thoughts discarded by geniuses, lessons learned by con men and saints, visions that came at midnight and vanished by morning.
All human in origin...these judgments are subject to revision, interpretation, contradiction...
...and the boom/bust cycle.
More to come.

dr-hero-img-08-12-26

Vanishing Midnight Visions

Some things are more likely than others. The daily solar system rhythm &mdash; morning, evening, night &mdash; will almost certainly continue. So will the rhythm of life itself &mdash; birth...life...death.
We saw that wars have rhythms too &mdash; they have beginnings and endings. But in between...when you start a war, you open the gates of Hell. Who knows what will come out?
But today, we sway to the rhythms of the investment world &ndash; and pet the Hellcats that dance in its back alleys.
Look at IBM...such a great company. My Investing News:
<blockquote>
Picture a retiree who accumulated IBM shares over 30 years and treated them as the quiet, dependable corner of a taxable portfolio. The reasoning seemed solid: IBM is a Dividend Aristocrat, raised its quarterly payout for a 31st consecutive year in April 2026, and has paid uninterrupted quarterly dividends since 1916. Yet the reliability of the payout did not make the stock price stable. IBM shares plunged 25.2% on July 14 after a rare warning about preliminary second-quarter results. For retirees, the lesson is not that IBM suddenly became worthless. It is that even a celebrated blue chip can become a dangerous retirement anchor when one company occupies too much of the plan.
</blockquote>
What went wrong at IBM? Forbes:
<blockquote>
The historic decline followed a letter from Krishna to IBM investors on Tuesday, in which Krishna said about the company&rsquo;s &ldquo;disappointing&rdquo; second-quarter performance: &ldquo;What played out was worse than our expectations. We did not adapt and move quickly enough.&rdquo;
</blockquote>
And &lsquo;poof,&rsquo; there went nearly $70 billion.
That, of course, is part of the rhythm. Now you see value...and now you don&rsquo;t.
The same disappearing value story is happening throughout the tech sector. What matters, at the end of the day, is cash. Either you have it or you don&rsquo;t. Google, for example, is making more of it than any company in history &mdash; $112 billion in the last quarter. But the stock is going down.
Why?
Because its cash is vanishing. The latest company report showed free cash flow negative by $6 billion. Where did it go? It was &lsquo;invested&rsquo; in AI infrastructure.
Tesla, same story. The stock fell 15% after the company announced a loss of $1.1 billion in cash. There, too, the money (earned from selling automobiles) was spent on AI infrastructure.
When the cash goes out the door, investors dive out the windows. Charlie Bilello makes this comparison:
<blockquote>
Apple has generated $129 billion in free cash flow over the past year while Oracle has burned $24 billion.
Their stocks have followed the fundamentals: Apple is up 56% over the past year, trading at an all-time high. Oracle is down 52% over the past year, trading at a multi-year low.
Investors are starting to draw a line on AI spending.
Apple&rsquo;s discipline is being rewarded. Oracle&rsquo;s overspending is being punished.
</blockquote>
SpaceX is in a class by itself. But it still follows the well-trod path &mdash; up...and then down. And it connects some dots for us. Part of the reason for Google&rsquo;s stellar Q2 earnings comes from reporting a $99 billion-markup in the value of its AI investments, especially Anthropic and SpaceX. Anthropic remains a private company.
But since its high on June 16th, SpaceX&rsquo;s value has been cut in half &mdash; that&rsquo;s $1.5 trillion, more or less, gone &lsquo;poof.&rsquo; Some of that loss will show up on Google&rsquo;s next quarterly report. The company will have to take a portion of its capital spending as &lsquo;depreciation,&rsquo; and recognize the decline of its investment.
Later this year, on December 9th, most of the &lsquo;lock ups&rsquo; will be released. Then, a crescendo of selling &mdash; from the clerks and cleaners as well as the honchos &mdash; should hit SpaceX like an asteroid.
Look out.
Editor&rsquo;s note: Find more of Bill&rsquo;s writing at <a href="https://www.bonnerprivateresearch.com/">Bonner Private Research.</a>

dr-hero-img-08-01-26

What went wrong at IBM

Alan Greenspan, RIP
We knew. He knew. We knew he knew. And &mdash; the final turn of the screw &mdash; he knew that we knew.
Yet the man sat there mum as a carp, his lips sealed. The surest way to keep a reputation for wisdom is to say nothing that can ever be checked.
We had got him into our office in Baltimore &mdash; Dan Denning, David Stockman, and your correspondent &mdash; to put the question to him plainly. He was past ninety. The honors were all banked, the pensions all drawing interest, the obituaries already set in type somewhere in a drawer at the Times. A man so situated has no earthly reason to dissemble. He has outlived every motive for the lie. It was the hour, we reckoned, for the confession.
For here was a fellow who &lsquo;wrote the book&rsquo; on how counterfeit money picks the pocket of the honest. He understood &mdash; none better &mdash; that to run the printing press is to file silently away at the savings of the thrifty and to hand the clipped shavings, gratis, to the spendthrift and the speculator. He knew the trick cold.
So we asked him: knowing it, why in the name of sanity did you do it? You, of all the men alive, held the lever. Why let the engine scream off its rails?
And the old conjurer gave us the mumbly-fumbly &mdash; that fog of subordinate clauses and qualified retractions that bamboozled a whole generation of congressmen and made him the high priest of American financial claptrap.
But man, the most ingenious of the animals, is also the most artfully self-deceiving. Each of us schemes after his own idol. One sweats at the gymnasium to flex a bicep; another marshals ranks of armed men to impose his will upon the map; a third hoards dollars, a fourth chases skirts, a fifth merely wants to be thought the cleverest fellow in the room. But under every one of these appetites runs the same buried river: the craving to stand out, to be reckoned worthy, to matter.
In the old brute days, a man fought for the right to breed&hellip;or even to exist. The modern article connives instead &mdash; and as a conniver there has never lived a finer specimen than Alan Greenspan.
The draft board turned him down in WWII for &ldquo;a spot on his lung.&rdquo; Whatever the spot was, it did not hinder him from blowing a creditable clarinet and saxophone, nor from outlasting the doctors by some eighty-two years. At such an age there is no need to ask the cause of death, but the Times, supplies one anyway: the complications of Parkinson&rsquo;s.
In the 1950s his first wife led him to the feet of Ayn Rand, and he was promptly baptized in the cold waters of &ldquo;objectivism&rdquo; and the Austrian creed. The doctrine is simple and, so far as it goes, sound: that whenever the politicians lay their meddling fingers upon the delicate machinery of a real economy &mdash; fixing a price here, printing a banknote there, taxing, tariffing &mdash; they corrupt the whole apparatus and turn honest exchange into a swindle.
Tampering with the money was the cardinal sin. Greenspan thought it grave enough to write a tract upon, in 1966, under the title &ldquo;Gold and Economic Freedom.&rdquo; He pronounced the printing of money to be precisely what it is: &ldquo;a scheme for the hidden confiscation of wealth.&rdquo;
Rand was in raptures when her smooth disciple was summoned to Washington. Now, she crowed, she had &lsquo;her man&rsquo; at the Fed.
She did not have him long. Principles are cheap furniture for a struggling philosopher or a journeyman saxophonist; he may keep them about the parlor all his life and dust them fondly. But the Chairmanship of the Federal Reserve calls for principles of another make. Volcker had wrestled the inflationary beast to the floor, now the politicians could spend and borrow more freely. But they needed THEIR man at the Fed.
There lay Greenspan&rsquo;s true historic office. The famous &ldquo;Greenspan put&rdquo; was nothing grander than this: he stood ready to catch every gambler who flung himself off the ledge &mdash; and so, he presided over the largest carnival of phony prosperity the world has ever staged.
<a href="https://x.com/Handre/status/2069032518003650709?utm_source=substack&amp;utm_medium=email">Handre</a>:
<blockquote>
From August 1987 to January 2006 Greenspan sat atop the Federal Reserve and did the opposite of everything his essay defended. After the 1987 crash he flooded the banks with liquidity and taught a generation of traders that the central bank would catch them every time they fell. They named the reflex after him: the Greenspan put.
He cut the federal funds rate to 1 percent by June 2003 and held it there, and you watched housing prices detach from any sane relationship to income. Mortgage credit gushed. He went on television in February 2004 and suggested Americans consider adjustable-rate mortgages, roughly eighteen months before he started hiking rates into those very borrowers. The man who warned in 1966 about the hidden confiscation of wealth engineered the largest credit distortion in postwar history.
</blockquote>
Beneath the notice of his death on Facebook there are gathered dozens of mourners, heads bowed around the coffin, in a posture of reverence. A &ldquo;great economist,&rdquo; sighs one. He &ldquo;helped us through a crisis,&rdquo; murmurs another &mdash; the crisis being, of course, the one he himself had manufactured. A third lays a wreath upon the long years of &ldquo;public service.&rdquo; The Times joins the chorus and out-gushes them all:
<blockquote>
At the peak of his fame, as the economy boomed in the late 1990s, his merest phrase could send the markets sharply up or down, and his face, behind thick glasses, was as familiar as any movie star&rsquo;s.
</blockquote>
So, the old scalawag got what he was after. The applause, the awe, the oracle&rsquo;s mystery preserved intact&hellip;Alleluia, even unto the grave.
Requiescat.
Editor&rsquo;s note: Read more of Bill&rsquo;s writing at <a href="https://www.bonnerprivateresearch.com/">Bonner Private Research.</a>

dr-hero-img-06-23-26

Free at Last

What lured us to Paraguay? Is it not a backwater? A disreputable refuge for war criminals and disgraced smugglers? A sweltering tropical island without a beach?
Not anymore. It is still hot &mdash; in the summer months. It is still landlocked, snuggled in between Brazil, Uruguay, Argentina, and Bolivia. But the old Nazis, if there ever were any, have died...and Paraguay has come alive.
A proximate purpose of our trip was revealed in the headline of the La Nacion (Paraguay) on Friday:
Shipments of beef to Europe will begin in June
Then, in Saturday&rsquo;s paper came more motivation in the UltimaHora:
The Fall of the Dollar Means Recalculating Investments
It is always a mistake to base investments on macro guesses. Even if you&rsquo;re right about the trends, they often don&rsquo;t have the results you expect.
But we don&rsquo;t expect people to stop eating beef. And if we can produce the meat efficiently, we might be able to eek out a modest living. No outsize profits. No serious capital gains. Just a decent business with decent returns. So, we&rsquo;re teaming up with an Argentine family to raise cattle in Paraguay.
Why Paraguay? Because it has lush, low-cost pastures...low taxes...and low labor costs. And a cattle investment in Paraguay is about as far from Wall Street as possible. More important, our partners know what they are doing. They&rsquo;ve been raising cattle in Argentina and Bolivia for many years. Now, they want to do it in the Chaco of Paraguay.
The logic of our business is simple. We buy the weaned calves at about 200 kilos. We let them eat grass, give them vaccines, watch over them...and then hope to sell them at 400 kilos. Generally, the young animals gain about a pound per day.
You just have to make sure they&rsquo;re taken care of properly.
Here are the gauchos who do it:
<img class="aligncenter" src="https://images.ctfassets.net/vha3zb1lo47k/69YNfrqB1nHqkztctJ8Tmd/1b3847a1dcabc260e29e2c8cd7bbc414/dr-img1-05-21-26.png" alt="image 1" width="450px" />
Source: Author
The trip from Buenos Aires to Asuncion was uneventful. From the airport, we drove directly out to the project. It&rsquo;s in the Chaco, a vast region to the west of the capital city, with few people, little infrastructure, and a rough past.
Along the way were the typical signs of Latin American poverty &mdash; trash next to the road, and smoke rising from where people were burning it...ramshackle houses of tin, plastic and rude lumber.....big gas stations...and dangerous potholes. It was not rare to see entire families on motorbikes. We watched nervously as a 7-year-old sat in front and steered, while his mother looked at her phone and his sister held onto her waist.
After we left the sprawl of Asuncion, however, we were on a new highway where the ubiquitous Toyota trucks flew by at 100 mph. On both sides of the road, for four hours, stretched vast fields of swampy wilderness.
Then, as we finally approached Filadelfia, in the Chaco, things changed. Houses were respectable. Tractors were in the fields. And our hotel, was unexpectedly nice. So far from civilization, in such a dusty little burg, we anticipated a very basic place to stay. But the hotel in Filadelfia was surprisingly large and well-run. Not at all fancy in its design or furnishings, it nevertheless had a very attentive and professional staff, full restaurant with a wide-ranging menu...and a bar with plenty of selections.
<blockquote>
&ldquo;The Mennonites developed this area,&rdquo; explained our partner. &ldquo;They came here because there was nothing here. Land was very cheap. Nobody wanted to come way out here.&rdquo;
</blockquote>
After the five-hour drive to &lsquo;way out here&rsquo; we wondered if &mdash; even today &mdash; anyone wanted to come. But there we were. And around us was evidence of a boom. There were many shiny new tractors and harvesters on display. Huge trucks pulled huge trailers &mdash; laden either with animal feed or the animals themselves. And around us were big, blond people speaking Spanish...or German.
There were no suspenders, long dresses or white caps. But these people were definitely not like the mestizos of most of Paraguay.
<blockquote>
&ldquo;First, they cleared the thick trees and bushes away and raised a few cattle.&rdquo; Our partner continued. &ldquo;They imported the Zebu and Nelore breeds from India and mixed them with the local cows. They&rsquo;re more &lsquo;rustic&rsquo; animals. They don&rsquo;t seem to mind the heat or the bugs.
&ldquo;They only started raising crops a few years ago. But now that they&rsquo;re producing corn, wheat, soybeans and other field crops, they have something to feed the calves; they can keep them longer and can fatten them up. And now they&rsquo;re exporting them all over the world.
&ldquo;They are also very well organized and capitalized. They set up a cooperative years ago. It&rsquo;s very important down here. The Mennonite cooperative partners with banks, insurance companies, developers and farm suppliers. Even this hotel is a joint venture with the Mennonite cooperative. Really, it was the Mennonites who made this area what it is.&rdquo;
</blockquote>
After a hearty breakfast, we drove out to see our cattle. It had rained during the night. The moisture left a slick layer of mud on the unpaved farm lanes; even with four-wheel-drive, we almost slipped off the road several times.
<img class="aligncenter" src="https://images.ctfassets.net/vha3zb1lo47k/4W9cxwt8GU3buv39qZaJnL/79cb87dad8f82b11f6155515dff79051/dr-img2-05-21-26.png" alt="image 2" width="450px" />
Source: Author
When we finally got to the fields, we were greeted by the gauchos above and the veterinarian:
<blockquote>
&ldquo;They&rsquo;re good animals. A mixture of Zebu, Brahmin, Nelore and Brangus. The whole business depends on putting on weight. So, we weigh them every couple of months. Then, we sell those that don&rsquo;t gain weight...and those that gain it fastest. Together, they give us an average price per animal and it leaves us with a herd that is more or less what we want &mdash; animals that steadily gain weight at a predictable rate.&rdquo;
</blockquote>
One of the drawbacks of this operation is that it is a long way from anywhere. It is a long way from Asuncion. It is even farther for our partners &mdash; two young men from a large farming family. They are based in Argentina, a 10-hour drive away. They come up once a month to check on it. After a cup of coffee and a brief discussion of how it is going, they got back in their truck for the long drive home.
The Chaco area is flat. It is hot. It is not a place we&rsquo;d like to live. But it may be a good place to raise cattle.
We&rsquo;ll find out.

dr-hero-img-05-21-26

Far from the Wall Street Crowd

A dear reader, planning to move here from Australia, wrote to ask if we thought this would be a good time to buy property in Argentina.
Context: Argentina is the most fascinating experiment in government and finance since the Bolsheviks took over Russia in 1917. Back then, the collectivists were determined to prove that they could do a better job of running a country than free people could do on their own. They failed.
<img src="https://images.ctfassets.net/vha3zb1lo47k/f3bvRptA8noJD1RSw8abq/19fb61e7cbc7b5fb76eda1e5bbad2909/dr-img1-05-12-26.png" alt="image 1" width="540px" />
In Argentina a similar, but less dramatic, experiment began in the 1950s, led by the Big Man, Juan Peron, and continued for the next 70 years. They wrecked the economy, too. Now, Javier Milei wants to show that the free market can fix it.
The first two things we noticed when we got to the airport in Buenos Aires was a major remodeling on the international terminal...and a cup of coffee cost 6,600 pesos.
Some quick math tells us that the dollar cost of the coffee was a little less than $5. That is about what you pay in most places.
We are staying in the old, elegant &lsquo;Recoleta&rsquo; neighborhood...in the old, elegant Alvear Hotel. We had heard that things were getting pricey. But you wouldn&rsquo;t know it from the local real estate listings. At a glance, you could buy a decent two-bedroom apartment for around $250,000. Not much more than it was a few years ago, the last time we looked. That seems cheap to us...too cheap to be the top of the market. But there are few fixed-rate, long-term mortgages in Argentina. The lack of credit keeps prices low.
But the quality of life, at least here in this upscale neighborhood, is high. Yesterday, we went for lunch at La Rambla on Posadas. It&rsquo;s a classic corner caf&eacute; where we&rsquo;ve gone for many years. The waiters are professionals...dressed properly with black jackets and white shirts. The food &mdash; mostly pieces of beef in various &lsquo;sandwiches&rsquo; &mdash; is excellent. And the d&eacute;cor &mdash; warm woodwork throughout, with wrap-around glass in front &mdash; was inviting and restful. As for the loud music that ruins most US restaurants, there was none. We sat and sipped our coffee, happily thinking that if there were a major nuclear war, we here in the Southern Hemisphere, would be among the last to die.
Ah yes, Buenos Aires, mi querido!
Small things. But a life is passed in small increments. Minutes...hours...days...full of sights, sounds, tastes, touches and words. Let the economists worry about GDP growth; we just want a quiet place to have a cup of coffee.
Beyond these initial impressions, we turn to two old friends who follow events in Argentina more closely than we do. Joel Bowman, for example, is on the case and on the numbers:
<ul>
<li>Country Risk: down from 2,700 to 510</li>
<li>Poverty: down from 57% to 28%</li>
<li>Annual Inflation: down from 211% to 30%</li>
<li>Debt: down $30 billion USD</li>
<li>Public Spending: down 30%</li>
<li>Public Employment: down 65k positions</li>
<li>Budget Surplus since 2024</li>
<li>Reserves: up $28 billion USD</li>
</ul>
Those numbers describe a major turnaround. But Doug Casey has a word of caution. He lists some &lsquo;unforced errors&rsquo; committed by the Milei government:
<blockquote>
&lsquo;When he was elected, one of his central propositions was abolishing the Central Bank. That hasn&rsquo;t happened so far. In fact, he&rsquo;s no longer talking about eliminating the evil institution.&rsquo;
&lsquo;Argentina should have defaulted on its debt, which was run up by past criminal regimes. Though much of that money was stolen, it&rsquo;s now a liability of future generations of young Argentines. But instead of defaulting on what they have, he&rsquo;s gone back to the IMF to borrow more.&rsquo;
&lsquo;Milei said that he wants to join NATO, a truly stupid and pointless desire. He supports the criminal Zelensky regime in the Ukraine. He wants to take sides in the conflict between the Israelis and the Palestinians.&rsquo;
&lsquo;And...Argentina, a bankrupt country, bought 24 used F-16s from Denmark for about $300 million, which makes no sense.&rsquo;
</blockquote>
The errors are costly. But probably not fatal. A bigger threat probably comes from politics. Cutting off government giveaways helps an economy in the long run, but it causes pain to voters in the short run. They may lose patience. We consulted our own expert source:
<blockquote>
&ldquo;Milei is doing the right things,&rdquo; said the cab driver. &ldquo;You know, we had thousands of people we called &lsquo;gnocchis.&rsquo; They were on the government payroll but they never came into work. Milei is getting rid of them. But it takes time. Probably two generations. You need to get rid of a whole mindset, where people think they can live off the government&hellip;. But I think this is the time to buy here in Argentina. It is a country on the way up.&rdquo;
</blockquote>
Hmmm...two generations is a long time to wait.
We&rsquo;ll be here in Buenos Aires for a few days. Then, we&rsquo;ll head up to Paraguay.
Stay tuned for a report.
Editor&rsquo;s note: read more of Bill and his team&rsquo;s work at <a href="https://www.bonnerprivateresearch.com/">Bonner Private Research</a>.

dr-hero-img-05-12-26

The free market can fix it

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Articles by Bill Bonner