Insiders are leaving the casino!

Mar 9, 2015

- By Bill Bonner

Bill Bonner
Gualfin, Argentina

We spent the weekend at our 'weekend place.' That's what we call the house we built in an even more remote area, about 2 hours on horseback further up the valley. We built the house - out of adobe and stone - to test out some Roman-era building techniques (vaulted ceilings, arches, and a dome...wood is only used for lintels) and to explore the outer limits of miminalist housing. No central heat. Only a fireplace and glass facing to the sun. Off the grid. Only a single 12 volt battery and small solar panel for electricity. Water from a stream, gravity fed to the house. Hot water from a metal tank, painted black.

Total cost of the house: about $10,000 (not including labor)

Operating costs: zero.

This weekend, the experiment looked like a failure. The valley was hot and full of flies. We couldn't close the doors and turn on the a/c. We don't even have screens. So the flies came in and some of them were in a biting mood.

To get away, we saddled up and rode up to visit Feliz and Ilena. They are in their 80s and live by themselves an hour-and-a-half further up the valley, accessible only on foot or on horseback. They live on a plateau, in a place called Corralito, watered by a river that seems to end at their place. They have grass for cows and horses. They have a garden with corn and squash. An orchard provides pears, peaches and apples.

One of their dogs had been chained up in stone corral. He had been eating the peaches.

--- Advertisement ---
Small Caps Could Give Big Returns... But Only To A Select FEW!

Small companies have the potential to multiply your money greatly.

But the FEW investors who actually get it right with small caps, do so through intricate research and patience.

With 7-plus years' track record of delivering solid returns from small caps, Equitymaster can provide you with all the research you need to make potentially big returns from small caps.

Click here for full details...

Feliz and Ilena were glad to see us; they don't get many visitors. We sat on benches in their ancient adobe house; they served us tea and cheese and talked about the people who live in the mountains. It was a pleasure to see them. But the flies swarmed around even worse than at our place. So Feliz kissed us on the cheek and asked us to send the nurse to visit. He's going blind in one eye and can't see well out of the other.

"But at least we're not like Marta Sandoval," he said.

"Who's Marta Sandoval?"

"Of course, you've never met her. She never comes down. She must be about 90. She lives alone."


" At Tacana."

Oh, Tacana. Everyone has heard of it. But almost no one has ever been there, or met Marta Sandoval.

"Doesn't anyone ever check on her?"

"Yes...a couple times a year. She has a grandson, I think, who might visit every few months."

"Why don't people visit her more often?"

"There's no road. Not even a trail. It's very rough. About 3 hours, most of it on foot. And you have to know where you're going."

"Oh...we'll have to visit her..."

But that's another subject....

Stocks fell hard on Friday, with the Dow down 278 points. Gold was flat.

You've heard by now why stocks fell; it was because the jobs report showed 290,000 new jobs last month. This 'good news' meant that maybe the Fed would allow interest rates to return to normal sooner rather than later. After all, the crisis that led to Zero Interest Policy is plainly over, no?

The stock market is where businesses are bought and sold. Prices should go up when those businesses seem to be worth more - that is, when their prospects for earning more money improve. They should go down when the outlook darkens. .

So why would the value of American businesses go down just when things are looking up? Oh, you silly reader...where have you been? Everybody knows the stock market now has little to with the real value of the businesses it trades. Share buybacks, carry trades, gambling, speculation - hey, this is 2015!

In the Nasdaq, for example, the valuations are now as bubbly as they were in the last bubble - in 2000. Zero Hedge recently reported that tech company insiders were selling a record amount of shares in the companies they started and they controlled. Why would you sell shares in a company that was on the verge of a cancer aging remedy...or the next Apple? Of course, you wouldn't. The insiders know the game and when to leave the casino. And they're getting out now.

And to make sure they get the best possible price for their shares, they use company money and company credit to bid up their stocks. Share buybacks and insider selling are both at record levels.

The stock market is no longer a place for honest people, exchanging ownership in productive businesses. It's been turned into a gambling casino. And now, with the 'good news' that more people found jobs last month, the players are worried: maybe the Fed will stop serving free drinks.

They can stop fretting, in our opinion. If a modestly favorable jobs report produces a 278 point drop in the Dow, what would an actual rate increase provoke? Or how about an increase back to normal - around 3%?

At least a 1,000-point decline. And headlines shouting about the end of the world. And panic at the Fed and in Washington. And....and....

...yes, and new pledges for 'action'...and 'whatever it takes' to avoid a crisis.

Which is why it is important to try to understand what is really going on. And how this scammy hulabaloo might end.

If you've been following our line of thinking, you already know we're expecting a breakdown in the financial system. A system that depends on ever-expanding credit cannot last forever. Credit is indistinguishable from money. And as the Fed increases credit/money, it is bound to set off a spate of consumer price inflation - sooner or later. At least that is the common view, based on the volume theory of inflation. "When more money chases the same level of consumer goods and services, prices must rise." That line must be in a textbook somewhere.

Then what? Most people who've bothered to think about it (a very small group) believe that it will end in rising levels of inflation that force either 1) a Paul Volcker 'come to Jesus' moment, in which the authorities come to their senses, clamp down, tighten credit, and protect the dollar. Or, 2) they are unable to get ahead of rising inflation and instead they follow it with more and more money 'printing,' leading to higher and higher levels of consumer prices...thus substantially reducing the real value of outstanding debt.

We will go with 2; it is more likely than 1, in view of the level of debt and the Fed's commitment to avoid a correction at all costs.

But before we get to 2, we believe we will have a brief and terrifying visit with 3), a deflationary Hell.

More to come...

Bill Bonner is the President & Founder of Agora Inc, an international publisher of financial and special interest books and newsletters.

Disclaimer: The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.

Recent Articles

Vignettes From Ireland February 17, 2018
Bill bonner discusses how the US government have created a phony picture of the real condition of the country.
Americans Are "Skint" February 16, 2018
Bill analyses rising inflation, falling retail sales, and other data that has got investors confused.
India's Rs 1,66,276 Crore Problem February 15, 2018
That's the loss, the government owned public sector enterprises are expected to make this year.
Bye-Bye, Balanced Budgets February 15, 2018
Is Washington on its way to trillion-dollar deficits?

Equitymaster requests your view! Post a comment on "Insiders are leaving the casino!". Click here!