Seeking Alpha

Bill Bonner's  Instablog

Bill Bonner
Send Message
Bill Bonner is an American author of books and articles on economic and financial subjects. He is the founder and president of Agora Publishing, and the principal author of a daily financial column, Inside Investing Daily.
My company:
Bonner & Partners
  • The Grandest Larceny Of All Time

    Gold seems to be coming back fast. It rose $38 per ounce yesterday.

    Of course, the Fed's monetary meddling doesn't work. And it will most likely cause a financial disaster.

    But the biggest scandal of today's central bank policy is that it is essentially the grandest larceny of all time.

    The normal ways in which wealth is distributed may not be perfect, but they are the best nature can do. People earn it. They save it. They steal it. Or they get richer by investing.

    Or they just get lucky...

    Normally, in other words, wealth ends up being distributed in an unplanned and uncontrolled way. People do their best. The chips fall where they may.

    But along come the central banks. They're creating a new type of wealth. It is not wage income. It is not the product of capital investments. It is not the result of technology or productivity increases or hard work or self-discipline... or any of the other things that lead to wealth and prosperity.

    Instead, it is created by the central bank "out of thin air."

    Not Your Grandfather's Wealth

    This new wealth is not like the regular kind. These chips don't fall where they may; they get pushed around first.

    The Fed creates new money (not more wealth... just new money). This new money goes into the banking system, pretending to have the same value as the money that people worked for. And people with good connections to the banks take advantage of the cheap credit this new money creates to aid financial speculation.

    That's what we've been watching in the financial markets for the last four years.

    From Chris Martenson at

    The central plank of Bernanke's magic recovery plan has been to get everybody back borrowing, spending and "investing" in stocks, bonds and other financial assets. But not equally so, as he has been instrumental in distorting the landscape toward risky assets and away from safe harbors.

    That's why a two-year loan to the US government will net you only 0.22%, a rate that is far below even the official rate of inflation. In other words, loan the US government $10 million and you will receive just $22,000 per year for your efforts and lose wealth in the process because inflation reduced the value of your $10 million by $130,000 per year. After the two years are up, you are up $44,000 but out $260,000, for a net loss of $216,000.

    That wealth, or purchasing power, did not just vanish: It was taken by the process of inflation and transferred to someone else. But to whom did it go?

    Where do the chips come to rest?

    While the Fed punishes honest savers, stocks and bonds rise every time a hint of more money printing is announced. And the yacht sales continue to rise, too, as long as the Fed promises more.

    A Recovery for the Rich

    The result? From Pew Research:

    During the first two years of the nation's economic recovery, the mean net worth of households in the upper 7% of the wealth distribution rose by an estimated 28%, while the mean net worth of households in the lower 93% dropped by 4%, according to a Pew Research Center analysis of newly released Census Bureau data.

    From 2009-2011, the mean wealth of the 8 million households in the more affluent group rose to an estimated $3,173,895 from an estimated $2,476,244, while the mean wealth of the 111 million households in the less affluent group fell to an estimated $133,817 from an estimated $139,896.

    These wide variances were driven by the fact that the stock and bond market rallied during the 2009-2011 period while the housing market remained flat.

    Affluent households typically have their assets concentrated in stocks and other financial holdings, while less affluent households typically have their wealth more heavily concentrated in the value of their home.

    From the end of the recession in 2009 through 2011 (the last year for which Census Bureau wealth data are available), the 8 million households in the US with a net worth above $836,033 saw their aggregate wealth rise by an estimated $5.6 trillion, while the 111 million households with a net worth at or below that level saw their aggregate wealth decline by an estimated $0.6 trillion.

    There may be a "recovery" going on. But it is a recovery for the rich, not for the middle class.


    Bill Bonner


    To learn more about Bill visit his Google+ page or Bill Bonner's Diary

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Apr 26 12:26 PM | Link | Comment!
  • Time To Cash In Your Chips?

    We don't like the looks of it...

    Advisors are too bullish. Investors are too complacent. The financial authorities are too confident.

    All up and down Wall Street... in central banks and in Washington... the stuff that goeth before the fall is thick, sticky and stinky.

    The economy is recovering, they say. The Fed has the situation in hand, they add. Don't worry... we know what we're doing, they assure us.

    Barron's magazine says the Dow is going to 16,000, illustrated with a picture of a bull on a pogo stick.

    (click to enlarge)
    View Larger Image

    Prime Minister Abe says he'll revive the Japanese economy by printing yen to buy Japanese bonds. And speculators take each hint from the Fed as though it were a whisper from God Himself.

    And all around them, the real economy struggles to stay even. Here's David Rosenberg of Gluskin Sheff with 12 signs that the economy is weaker than we think:

    • Household employment (-206,000 in March, the steepest decline in well over a year).

    • Real retail sales (-0.3% in March, down for the second time in three months).

    • Manufacturing production (-0.1% and also down in two of the past three months).

    • Core capex orders (-3.2% in February and, again, down in two of the past three months).

    • Single-family housing starts (-4.8% in March and negative for two of the past three months, as well).

    • New home sales (-4.6% in February).

    • Philly Fed for April down to 1.3 from 2 .

    • NY Fed Empire manufacturing index down to 3.05 from 9.24.

    • NAHB Housing Market I ndex down to a six-month low of 42 in April from 44.

    • Conference Board C onsumer C onfidence I ndex down to 59.7 in March from 68.

    • University of Michigan consumer sentiment down to 72.3 for April from 78.6, the lowest in over a year.

    • Conference Board leading indicators down 0.1% in March, first decline in seven months.

    Markets Make Opinions

    Facts, figures, statistics...

    Do you believe them, dear reader? We don't. We're just giving the dreamers a little taste of their own medicine.

    "Markets make the opinions," say the old timers. When prices are up, people share the opinion that they are going up. When prices go down, opinions change with falling prices.

    And when prices rise, the opinion mongers look for reasons to explain why they have become so bullish. They find indexes, statistics, numbers - all the "facts" confirm their opinion. When prices fall, their opinions grow dark and they need to find new facts that they can use to justify a counter view.

    Get a feeling. Form an opinion. Find a fact and pretend that you are a rational, reasonable investor. That's the name of the game.

    But are we any different?

    Not at all. We're just crankier. More cynical. And less impressed by authority in all its forms. Besides, we've been living in Argentina.

    If a Nobel Prize-winning economist tells us that the economy is improving, what do we really know? We know he can talk!

    If the president tells us that he and his friends are making the world a better place, what do we do? We laugh!

    If a leading financial magazine tells us that the "Big Money" firmly believes the Dow is headed higher, what do we do?

    We seriously consider selling!

    From bearish fund manager John Hussman: "Rule o' Thumb: When the cover of a major financial magazine features a cartoon of a bull leaping through the air on a pogo stick, it's probably about time to cash in the chips."


    Bill Bonner


    To learn more about Bill visit his Google+ page or Bill Bonner's Diary

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Apr 26 9:33 AM | Link | Comment!
  • Why I'm Praying For Government Incompetence

    "You Americans don't understand anything. You have to come to Argentina and live here for a few years. Then you'll understand America."

    We had to ask, "Huh?"

    "When you're here, you can see more clearly how things really work... and don't work. You see the real nature of things... especially government. Believe me, you Americans have all sorts of delusions.

    "A government 'by, for and of the people'? Or, as Hillary Clinton put it, 'The government is all of us.' Not quite. And when you've been here for a while, you'll see your own institutions more clearly."

    Our Man in Argentina

    The speaker was a friend of ours. An American from Alabama who has lived in Argentina for 30 years. He lived through the hyperinflation of the 1980s... the boom of the 1990s... and the crash of the 2000s.

    He saw corrupt presidents. Honest presidents. Competent presidents. Bumbling presidents. Lots of presidents. In a two-week period in 2001, Argentina had four different presidents. Each one tried to stop the financial meltdown. None could.

    "Hey, that's nothing,"; continued our friend. "During the military regime we had four de facto presidents in a single day.

    "I remember when I got here. I felt so superior. Because our system in the United States worked so much better. But now I see it differently. Because I now know that there are some things that are better when they don't work so well. I'll tell you a story to illustrate.

    "Two guys die. A German and an Argentine. Both of them go to hell. But after they've been there for a couple of weeks, the German guy is in a gutter... all bruised... with sores and burns all over his body.

    "The Argentine still looks pretty good. When the German sees him, he says, 'Hey... how come you're still in good shape? They get us up at 5 a.m.... and the little devils start to torture us by beating us with iron rods. Then, at 8 a.m., they turn us over to the real devils. They whip us with barbed wire and then put cattle prods to our private parts. Then they throw buckets of sh*t on us... and waterboard us all afternoon. Aren't you getting the same treatment?'

    "'Well, yes,' says the Argentine, 'but you're in the German section of hell. We're in the Argentine section. The rules are the same. But they're not applied in the same way.

    "'The little devils are supposed to get us up at 5 a.m. so they can begin torturing us. But they don't get up that early. And they don't come to work very often. They're all unionized. So they go on strike all the time. And then the real devils are meant to whip us with barbed wire. But there's a shortage of metal... so they don't have any whips.

    "'They put the cattle prods on us sometimes too... but the power doesn't work. Or the cattle prods are missing. Nobody seems to know why. And they're also supposed to throw buckets of sh*t on us too. But sometimes they're out of sh*t... and other times they can't find the buckets.

    "'As for waterboarding, the plumbing isn't working. So they strap us to the rack and pretend to dunk us... and warn us that when they get the plumbing working, we're not going to like it very much.

    "'But so far, it isn't bad.'"

    Some Things Are Best Done Badly

    The Japanese faced huge logistical challenges when they bombed Pearl Harbor. Who thanks the staff officers who overcame them?

    Imagine what a feat of monetary engineering was accomplished by Gideon Gono when he flooded the Zimbabwe economy with 100 quadrillion dollars. But does anyone stop him in the street and commend him?

    Some things are best done badly or not at all, we conclude. If you're sent to the gallows, you hope that the rope maker was having a really bad day.

    And if your central banks have their hearts set on a program of financial doomsday... you pray they're incompetent, not just stupid.


    Bill Bonner


    To learn more about Bill visit his Google+ page or Bill Bonner's Diary

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Apr 24 11:09 AM | Link | Comment!
Full index of posts »
Latest Followers

Latest Comments

Most Commented
Posts by Themes
Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.