Friday, March 4, 2016

Always Watched, Always Monitored, Always Recorded

BALTIMORE – When we left you yesterday, we were discussing the War on Cash – the push by governments to abolish physical currency.
It is a fraud. The idea is not to fight crime or boost the economy, as its proponents claim. It is part of a bigger campaign by the Deep State to take more control over your money… and your life.
We’ll return to our theme in a moment. But first… an update on the markets and the economy.
The Attack America Never Saw Coming
Another surprise attack against the U.S. dollar is coming. And soon, too.
This attack won't be from China.
Instead, this one will hurt the worst — coming from a sworn "ally" of Americans.
Click here to view this short message on how to prepare for the next "surprise" currency move.

Trade Slump

It came out last week that world trade did indeed fall in 2015. It was the first time this had happened since 2009.
Starting at the end of last year, we began following the trains, trucks, ships, and sales of “yellow machines” – backhoes, loaders, bulldozers, etc. – and watching them all slow down.
Sure enough, they were telling us something important. Reports the Financial Times:
The value of goods that crossed international borders last year fell 14% in dollar terms.
Most notably, a decline in world trade means China is not exporting as much merchandise as before. This, we guessed, would mean a greater outflow of foreign exchange reserves from China’s central bank… and make it more difficult for it to prop up the exchange value of the renminbi.
(A country accumulates foreign exchange reserves when it exports more than it imports. In the case of China, dollars, euro, etc… flow into the country in exchange for Chinese-made goods. This foreign currency builds up as reserves at the central bank. It can then dip into this stash to buy its own currency and prop up its value.)
The Chinese government denied it. And it warned billionaire speculator George Soros not to short the renminbi. But as in the old Soviet days, no rumor is confirmed until it is officially denied.
And sure enough, yesterday’s Financial Times brought news that the renminbi was slipping:
This morning, the People’s Bank of China [China’s central bank] set the reference rate for the renminbi, around which the currency is allowed to trade, weaker by 0.17% and lower for a fifth straight session.
It was both the equal-largest depreciation and longest streak since the first week of January, when the currency’s movements spurred heightened volatility in global financial markets.
The renminbi’s weakness comes despite comments from Zhou Xiaochuan, the PBoC’s governor, at the start of the G20 finance ministers and central bankers meeting last Friday that there is “no basis for persistent renminbi deterioration.”

Cruisin’ for a Bruisin’

Back in the U.S., the Dow fell 123 points yesterday. But judging from the prices they pay, investors are still wildly optimistic.
You may recall that it was the price/earnings-to-growth ratio – or PEG ratio – that made a young portfolio manager at the Fidelity Magellan mutual fund named Peter Lynch so successful. (His fund went on to outperform the market by a whopping 13.4% a year annualized.)
The PEG ratio looks at the relationship between a stock’s price-to-earnings (P/E) ratio and the consensus forecast for earnings-per-share growth.
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According to Lynch, when a stock’s P/E ratio is equal to its growth rate – a PEG ratio of 1 – it’s fairly priced. When the ratio is high, investors are willing to pay a lot for future earnings growth.
Similarly, when the PEG ratio is low, it means investors are paying little for growth. And when it is at an all-time high – as it is now – it means investors are cruisin’ for a bruisin’.
Not that we care; we hold plenty of cash and gold in case of an emergency.

Cameras, Microphones, Sensors

So, let’s turn back to the War on Cash.
There is a battle going on between tech darling Apple and the FBI.
To fill you in… the FBI wants Apple to unlock data on an iPhone used by one of the attackers involved in the San Bernardino shootings last December.
Apple says that supplying the FBI with the information needed to unlock the data will leave all iPhone users vulnerable to hackers.
The fight concerns much more than whether the feds will be able to hack your smartphone. They will soon have access to your whole life. The New York Times explains:
Today’s smartphones hold a lot of personal data – your correspondence, your photos, your location, your dignity. But tomorrow’s devices, many of which are already around in rudimentary forms, will hold a lot more.
Consider all the technologies we think we want – not just better and more useful phones but cars that drive themselves, smart assistants you control through voice or household appliances that you can monitor and manage from afar.
Many will have cameras, microphones, and sensors gathering more data and an even more sophisticated mining effort to make sense of it all. Everyday devices will be recording and analyzing your every utterance and action.

Rats in a Cage

What would the feds do with that kind of information?
Here are the Chinese, also in yesterday’s Financial Times, giving us a heads up:
Beijing’s internet watchdog has silenced an outspoken property tycoon known as The Cannon by shutting his popular social media account…
A push of a button. And no more “illegal information that had caused a bad impact,” said the regulators.
Isn’t the Internet wonderful?
In the old days, you’d have to break into a newspaper office and smash the printing press… or get a court order to padlock the premises. Now, we have “Internet watchdogs” who just push a button.
And wouldn’t it be nice for the Deep State if all your financial information… and the control of your money… were all online too?
In Margaret Atwood’s dystopian novel The Handmaid’s Tale, a future U.S. has turned into a police state. The authorities control people with electronic money cards. Like rats in a cage, they get their rations… until the watchdogs cut them off.
If the government gets its ways, this could be the real future, not just fiction. Removing cash from the system is just one big step along the way.
But there is more to the story… much more…
Tune in tomorrow.
Further Reading: The War on Cash is a last ditch attempt by governments and central banks to keep the worldwide credit bubble inflated. But as Bill has been warning, it won’t work. Instead, it will lead to a monetary catastrophe more devastating than anything you’ve ever seen.
That’s why Bill has put together a special presentation to explain what’s going on. You can’t protect yourself from the coming collapse if you don’t understand how it will unfold. Find full details here.

Portfolio Insight


[Bill’s Note: For over a decade, value investor Chris Mayer has been one of the top-performing analysts in our business. And we’re proud to have him as the newest member of the Bonner & Partners team. Chris is working on an exciting new project for Diary  readers – code-named Bonner Private Portfolio. So, expect to hear more from him in these pages over the coming weeks.]

Last week, I traveled to St. Croix, in the U.S. Virgin Islands, with E.B. Tucker, editor of the Casey Report… to dig deeper into how this works.
We met with Warren Mosler, a legendary money manager who retired there about 13 years ago.
Mosler racked up a truly amazing track record. From 1978 through 1997, his fund was one of the top ranked in the world. And he had only one losing month – a drop of one-tenth of one percentage point.
Mosler’s secret weapon was his grasp of how the “plumbing” of the modern fiat-based money system works. His specialty was exploiting other investors’ misunderstanding of the fiat money system.
E.B. and I met Mosler for breakfast at the Tamarind Reef Resort. He had just come in from a game of tennis. He is a trim 67, friendly, and easygoing.
We talked for nearly two hours. And Mosler explained why lower rates don’t help the economy…
As he put it, lower income payments – on either bonds or bank deposits – suck money out of the economy. This is completely contrary to what most people think.
As Bill has been warning, central bankers are laboring under a dangerous myth.
They believe lower interest rates stimulate economic growth. (Bill talked about this “boneheaded” logic here.)
But the truth is that ZIRP (zero-interest-rate policy)… and now NIRP (negative-interest-rate policy)… further depress an already weak global economy.
Lower rates simply mean the private sector earns less income than before. That means less money floating around.
That’s deflationary, not inflationary.
As I told Bonner & Partners Inner Circle readers last week [paid-up subscribers can catch up here], when you realize that ultra-low… and negative… interest rates just take away people’s money, the insanity of what central banks are doing becomes apparent.
Mosler believes – and E.B. and I agree – that the world economy is on the edge of a deflationary recession.
And ZIRP and NIRP are making it worse.
Editor’s Note: This wasn’t the only insight Chris picked up in St. Croix. He also discovered Mosler’s top idea for investing in this low-rate environment – one that could give your portfolio a boost for the next two decades.
Chris will be sharing Mosler’s winning idea in a special email on Friday. To make sure you’re on Chris’s mailing list – and to stay up-to-date with all the details of his new project – follow this link.

Featured Reads

The Most Important Thing Buffett Said in His Annual Letter
Warren Buffett is considered to be the best investor of all time. The most important thing he said in his latest annual letter is how modest his performance has been.
Japan Sells 10-Year Bond With Negative Yield for First Time
The Japanese government got paid to borrow money for a decade for the first time. It just sold $19.5 billion of the debt at an average yield of negative 0.024%.
10 Funds to Abandon in a Chinese Bankruptcy Storm
China is on the brink of the largest series of bankruptcies in history. Any portfolio with too much China exposure will suffer. Here are 10 funds that every investor should avoid.
Rickards: “This is the Biggest Accounting Hoax Since Enron”
According to Jim Rickards, the fallout will be 525 times bigger than Enron and is sure to affect all American citizens — no matter where you live, what you do for a living or how much money you have.
The mainstream media could uncover this deception anytime now. Once that happens, it will be too late for anyone to act.
Will you be ready? Click here to find out more


If you’re not already a subscriber to Bill’s monthly publication, The Bill Bonner Letter, you’re missing out. Here’s what readers have to say about the most recent issue – which covers the major slowdown in the global economy.
Congratulations. This was a great newsletter, written so the average guy on the street (like myself) could read and understand it – just awesome – all I can say, a simple "Thank You.”
— Gordon P.
Thank you for one of, if not the best, explanations… with examples… for the layman to understand. Very helpful. Again, thanks!
— Dawn K.
Your recent letter with quotations from the past about the stock market being “casino like” was interesting and enjoyable to read.
Long ago, I asked an attorney friend that had professional dealings with the stock market his opinion about investing in it. He replied that it was like gambling and did not encourage getting involved. Even when I pressed him and suggested that knowledge can lower risk, he discouraged it and suggested I’d be better off putting money into small companies I know something about.
He continues to do very well as a venture capitalist. I have lost virtually everything in the real estate crash and now the oil-business crash. Both looked so good and did well at the time… and for a time. But like all of the TV and movie stories, where the star in the casino gets way ahead on chips but then loses everything, I waited too long to get out. Oil will come back but the real estate is gone for good.
Take it from a veteran gambler – someone who won $60 from a quarter slot machine in Reno the ONLY time he gambled in a casino, but then lost hundreds of thousands in oil and real estate investments – that careless optimism is foolish. Even the most solid looking investments MUST be carefully monitored and balanced with less risky ones.
Thanks for the great writing Bill. I look forward to much more.
— Brian B.
Don’t miss out any longer on what Bill has to say in The Bill Bonner Letter. In fact, here’s his most recent warning about a crisis that will affect your cash.

In Case You Missed It…

Yesterday, the Dow fell over 100 points. And the analysts at Dent Research say it’s just the beginning.
They’re predicting a 10,000-point drop before all is said and done. But their top expert explains how you can be one of the few to sidestep the carnage… Watch here.

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