August 6, 2019
We have escaped the city of Baltimore briefly…
Instead, we are on a private sport-fishing yacht about 70 miles offshore.
We venture out to speak with one of the most successful men we know.
Barron’s called his warnings “remarkably prescient” ahead of the housing crisis… He predicted the downfall of General Electric and other American institutions… And he brought us a shocking forecast in our American Consequences 2020 documentary. (Watch it here.)
We want to interrupt his well-earned fishing trip to get his views on the huge risk in credit markets… and what it means for you.
The credit market may not be something you’re familiar with. Most people focus on the stock market… cheering when it goes up… and lacing up the Doc Martens and looking for someone to kick when it goes down.
But the credit market is much more important to the global economy. It’s a vast marketplace of debt – in particular, government debt and corporate debt.
Today, even allegedly safe debts have become toxic, including the sovereign bonds of many of the world’s most trusted debt issuers – countries like Switzerland, France, Japan, and Germany.
Two months ago, the world set a record… $13 trillion in corporate and government debt now trades at a negative yield.
And the total amount of negative-yielding debt has doubled since December.
What that means is that if you own these bonds and hold them to maturity from their current prices, you are 100% guaranteed to lose money.
It also means that corporations are essentially getting paid to borrow money.
How will this type of speculative mania end?
Well, that’s what I plan to find out today.
Because I suspect the conclusion won’t simply be a bear market in stocks… It won’t stop at a 20% pullback and quick rally back like we saw in December.
No, I’m afraid not.
The ultimate, inevitable conclusion of this type of historic anomaly is simple…
We will experience a true crisis.
One that makes Americans wish they had listened to the warnings of 2008 and had gotten their financial houses in order. After all, while there was financial destruction back then, there was shockingly little violence.
The 2008 “Great Recession” was catalyzed when mortgage bonds collapsed. Millions lost their homes, their jobs, and their money… But the rule of law stayed sound.
What’s coming will dwarf 2008…
Because this time, the default will come from the money owed by the world’s largest governments and its biggest, “investment grade” corporations. These are assets that are thought of as safe… and held in essentially every American’s 401(k) plans, pension funds, and IRAs.
I’ll report back later this week. Until the eventual disaster comes, enjoy this “fair weather” economy… and keep your lines tight.
Now here are a few things we’re reading…
What It Feels Like to Die from Heat Stroke
You remember leaving the scooter and starting up a long grassy slope toward a volcanic ridge. After that there was only the relentless weight of the sun overhead, the heat-blasted lava rock underfoot, and the sense that you were being crushed between them with nowhere to run or hide.
Imagine Anthony Bourdain had written The Road to Serfdom while traveling with Hunter S. Thompson. Socialism Sucks isn’t quite Fear and Loathing in Las Vegas, but it’s definitely not the kind of dry academic treatment for which economists are (in)famous.
The train’s journey is a reminder of the majesty of American infrastructure, and of the power of old-fashioned spectacle to bring communities together. But perhaps that’s putting it too grandly. In the end, Big Boy is mostly a reminder that huge trains are awesome.
And let us know what you’re reading at [email protected].
Publisher, American Consequences
With P.J. O’Rourke and the Editorial Staff
August 6, 2019