Stocks Continue Down Trend

For the third week in a row U.S. stocks were down and the 30 Year U.S. Treasury was up suggesting a risk-off trend. During the time gold has been taking a breather with little change. The yellow metal closed this week at $1,509.70 in New York. As well, gold shares have fallen off a bit.  I suppose it’s human nature to simply deny reality when it becomes too difficult to deal with. For example, as a 72-year-old man, most of the time I ignore that, at best, ~75% or more of my life is in the rear-view mirror. Despite the fact that I firmly believe something much better awaits me “on the other side,” the idea of an end of existence within these four dimensions of time and space when I head into the unknown is still something that kind of freaks me out when I think about it. So, most of the time I simply ignore that thought and get on with life’s necessary tasks. 

So it is with the dire future economic results staring us in the face. Wall Street for the most part finds it difficult to face the fact that the western world is rapidly nearing an end of the good times that we have enjoyed since WWII. The fact that correcting the financial sins of the past would catapult us into an instant depression has caused policymakers to simply ignore reality because the future is simply too dire to contemplate. Yet in order to make the best of what is going to be a very bad situation, facing reality is better than not doing so, which is why guests like David McAlvany, Doug Noland, Alasdair Macleod, and David Stockman are frequent guests on my radio show.  They are all outspoken in analyzing and facing major changes heading our way.

Speaking of David Stockman, today he put out the following comments to his paid subscribers:

Here are two shocking numbers that both ends of the Acela Corridor devoutly pretend to not matter: 

  • June 30, 2019………………………………….$16.188 trillion;
  • September 30, 2019………………………….$16.809 trillion 

The difference is $621 billion and it represents the amount by which the publicly-held Federal debt increased during Q4 of the fiscal year just ended. That’s about $7 billion of new borrowing per day including holidays and Sundays and amounted to 12% of the GDP generated during the quarter. 

Even if you allow for the fact that this massive increase in the publicly-held debt went in part ($78 billion) to rebuild the US Treasury’s depleted cash balance after the debt ceiling was raised last March, the net increase is still $543 billion.

Folks, that’s Uncle Sam’s operating deficit for the quarter, the bottom line difference between the inflow and the outflow.

So the question recurs: What in the world are these folks thinking? 

The fiscal quarter just ended encompassed months #120-123 of the current business cycle expansion—-a longevity zone that has never before been traversed. So living on borrowed time is hardly the word for it.

What kind of madness, therefore, says that Uncle Sam can be borrowing 12% 0f GDP at the tippy top of the business cycle when its damn obvious that the US economy is slouching toward stall speed and recession thereafter? 

As we have been documenting, the US body economic is riddled with the accumulated disease of a central bank driven spree of debt, speculation and malinvestment. Like, for instance, the 15 million square feet of office space that WeWork has under long-term lease in the hopes that the thousands of “cash burn baby” start-ups which rent its “desks” by the month will never run out of VC capital to destroy. 

Likewise, the total public and private debt of the US economy has been off to the races as well—notwithstanding the alleged wake-up call we got about excessive debt at the time of the 2008 financial crisis. 

In fact, here’s what has happened since then. Total debt is up by nearly $21 trillion since the pre-crisis peak in Q4 2007 to a staggering $73.4 trillion at the end of Q2 2019. 

On my show recently, David agreed with Alasdair that if/when the world’s reserve currency heads into negative interest rates “It will be all over for the dollar and the existing monetary system. And as both David Stockman and Alasdair opined, the likelihood of heading into negative nominal rate territory in the near future appears to be nearly 100%.

That’s a 40% expansion at a time when we were supposed to be deleveraging; and it’s also a reminder that cheap debt-fueled growth is reaching its sell-by date: During the same 12-year period, nominal GDP increased by only $6.8 trillion, meaning it took $3 of incremental debt to generate just $1 of additional GDP.

In other words, most people are either ignorant of the economic crisis we are facing or they simply put it out of their minds because it is too painful to contemplate. While the timing of an impending calamity is impossible to ignore, there is little doubt that gold’s rise through a six-year ceiling as well as the historically low Treasury rates and indeed cancerous negative rates in many parts of the world is a certain warning that this Titanic has been hit by an iceberg.  When we sober up, we realize that we have been enjoying the beautiful music of the orchestra playing on the deck of the Titanic and that we are about to sink. We can either be frozen with fear or get ahead of the crowd by securing a lifeboat, the latter of the two options of course is what this letter is attempting to do.

About Jay Taylor

Jay Taylor is editor of J Taylor's Gold, Energy & Tech Stocks newsletter. His interest in the role gold has played in U.S. monetary history led him to research gold and into analyzing and investing in junior gold shares. Currently he also hosts his own one-hour weekly radio show Turning Hard Times Into Good Times,” which features high profile guests who discuss leading economic issues of our day. The show also discusses investment opportunities primarily in the precious metals mining sector. He has been a guest on CNBC, Fox, Bloomberg and BNN and many mining conferences.