PARIS – First, the news.

Cryptocurrencies took a beating after Jamie Dimon – the CEO of JPMorgan Chase, a bank that makes billions from today’s fake-money system – called bitcoin a “fraud.”

Bitcoin – the leading cryptocurrency by market value – is down to $3,143 at this writing.

That’s about 36% lower than its all-time high of $4,911, set on September 1 of this year.

President Trump put another knife into Republicans. According to press reports, he agreed to not only give the “Dreamers” refuge, but also to forget about building “The Wall.”

And the U.S. national debt rose over $20 trillion… thanks to last week’s debt ceiling suspension.

Meanwhile…

Apparent “Prosperity”

Our hypothesis is simple: Real money represents real resources.

Phony money – such as credit created out of nothing by the Fed – is counterfeit; there’s nothing behind it.

If you could create real prosperity by flooding the economy with fake money, Zimbabwe would be the richest country on Earth.

It printed gazillions of Zim dollars to stimulate the economy. Then, when there was no one left with any real money… and nothing left to buy with it anyway… the Zimbabwe feds gave up. They brought in U.S. dollars.

When criticized by foreign economists for his role in this disaster, Gideon Gono, the governor of Zimbabwe’s central bank, had a good answer: “Hey, I didn’t do anything you’re not doing.”

He was right. But what Gono did quick, Janet Yellen, Mario Draghi, et al. are now doing in slo-mo.

Any boom – fast or slow, big or little – financed with fake money must eventually turn into a bust. And every dollar of apparent “prosperity” – wrought by the counterfeit money – must go back whence it came.

Classical economists in the 18th and 19th centuries showed why this was so. The demonstration tends to be longer and more tedious than we can stomach here. Instead, we resort to an intuitive proof.

You pretend to be rich; a Russian model marries you. Then she discovers you are penniless; how is that likely to work out?

2008 Redux

This year, total household debt in the U.S. rose to $12.7 trillion – surpassing its 2008 peak.

That’s the amount of stuff consumed, credit cards maxed out, and vacations enjoyed – on credit above and beyond savings.

You may say, “Well, so what? We’re able to carry the debt. We’re all right so far.”

Our grandfather, who lived through the Great Depression, used to joke about it. He said he was on the 11th floor of the First National Bank building in Baltimore, in 1931, when he saw someone through the window who had just jumped off the roof.

“I’m all right so far,” yelled the man.

And yes… we are all right so far. We can carry the debt.

But look at what happens: Today’s wages and asset prices – which we depend on to shoulder that debt load – themselves depend on increasing debt.

That is, as we saw yesterday, the typical consumer has to keep borrowing. If he stops, sales will go down… profits will go down… wages will go down…

…and it will be impossible to pay the interest on the current level of debt.

In other words, there is no such thing as a stable debt-fueled expansion. Instead, it is boom… and then bust. There’s no standing still. You are either taking on more debt to keep the debt bubble inflated…

…or the whole shebang is losing air.

And what makes today’s financial world so exciting is that there is so much air to lose – $13 trillion in America alone.

So… what’s that hissing noise?

Doom Index Update

We turn to the Bonner & Partners research department, led by Joe Withrow, for an update:

The Doom Index is still at a reading of 7 – our “extreme warning” level – as we enter the final month of the third quarter.

Credit growth is just above negative… but less than 1%. Corporate bond downgrades continue to outweigh upgrades. Stock valuations press ever higher. Margin debt [money stock market investors borrow from their brokers using shares in their accounts as collateral] continues to grow.

But the ISM Manufacturing Index – a key gauge of the health of the manufacturing sector – continues to hold strong. And junk bonds refuse to crack.

But remember, our backtests are based on quarterly data. Any major swings this month could push the Doom Index to a reading of 8 – signaling a return of the old and tattered Crash Alert flag. Until then, we remain extremely cautious…

We used to run our Crash Alert flag up the pole on instinct alone. After so many years of watching the stock market, we thought we’d developed a sixth sense for when it was getting ready to collapse.

And sometimes we were right! At the end of the 1990s, for example. And again in 2008.

But we were wrong sometimes, too.

Since 2009, we’ve raised the flag several times… and still no crash!

The poor black-and-blue standard was tattered by the wind… bleached by the sun… and drenched by the rain.

Finally, we had pity on it… blew taps… and hauled it down, wrapping it with white gloves and putting it away until the day it comes out again.

And now, our Doom Index is just a fraction of a point away…

We’re ready, Joe. Tell us when to raise the flag.

Regards,

Signature

Bill

 

Market Insight: The Year of the S&P 500

BY CHRIS LOWE, EDITOR AT LARGE, Bonner & partners

bill bonner

This year has been the best year for the S&P 500 since 2013.

Today’s chart looks at the year-to-date return (first 174 days) of the index.

It plots it against returns over the same period in each of the past four years.

As you can see, year-to-date, the S&P 500 is up 11%.

That compares with a 6% return at the same point in the year in 2016… a -5% return in 2015… an 8% return in 2014… and a 15% return in 2013.

– Chris Lowe

Featured Reads

SEC Sets Its Sights on Cryptocurrencies
China recently cracked down on cryptocurrency exchanges. Cryptos like bitcoin tumbled. Now, the Securities and Exchange Commission (SEC) is also setting its sights on these crypto assets.

Carmakers Demonstrating “Cartel-Like” Practices
European officials recently levied serious accusations against some of the world’s biggest automakers. Companies like BMW, Audi, and Daimler are accused of holding secret meetings and colluding on technology. Now, some funds are taking notice.

Why the “War on Drugs” Has Failed
Bill has often mentioned that the “War on Drugs” was never meant to be won. Colleague and New York Times bestselling author Doug Casey shows why prohibition is making America’s drug crisis worse, not better.

Mailbag

Last Friday, Congress expanded the national debt by another $317 billion, and it’s gotten some readers thinking…

In the 1970s my Father, a conservative libertarian, started to go ballistic. He would show me our paper money and go off on all of this “stuff.”

I was just starting college and treading water as hard as I could to stay afloat. I just figured that if people had money to pay me for my work and people would accept the money that I gave them, why sweat it?

I worked 20 years for big corporate America and worked my way into the “big money.” I could never figure out how such stupid, backstabbing people could generate so much money. I gave them my life, but when they came for my soul, I said “goodbye.”

Now, I am running three separate, small businesses, and finally understand what Dad was so rabid about. If he had not insisted on cremation, he would be turning over in his grave.

– Ken B.

I like your comments regarding fake money and the Deep State. We, the 90%, are the victims of crimes which have international implications as well. America sneezes and the world feels the cold.

With such a large audience worldwide, I suggest it is time we start a petition addressed to the President and the Fed. You have the tools in place to ask the public to vote for the petition. It is time for action by way of a wake-up call even though it is too late to rescue ourselves from the damage already inflicted. I wish you Godspeed.

– Pravin T.

Editor’s Note: Earlier this year, Bill’s team did take action by sending a memo to the White House. The memo outlined a potentially devastating financial disaster facing the U.S. and proposed steps to prepare today. That report was recently made public, and you can read a copy right here.

In Case You Missed It…

Our colleague Teeka Tiwari recently released one of his popular 3-Minute Market Minder videos. They’re a great, and quick, way to stay in touch with important insights in the market.

In today’s video, Teeka talks about China’s recent crackdowns on cryptocurrencies, and what it could mean for crypto traders… Watch it right here.