Zombies Gone Wild

Apr 24, 2015

- By Bill Bonner

Bill Bonner
Gualfin, Argentina

Dear Diary,

Why is the 21st century such a dud? Here's another reason: because there are so many zombies. Why so many? Because it pays. A reader sends this:
Follow these easy, proven, 13 steps to financial well being....

    1. Don't get married to her.
    2. Use your mom's address to get mail sent to.
    3. Guy, (YOU) buys a house.
    4. Guy rents out house to his girl girlfriend who has 2 of his kids.
    5. Section 8 will pay $900 a month for a 3 bedroom home.
    6. Girlfriend signs up for Obamacare so guy doesn't have to pay out the butt for family insurance.
    7. Girlfriend gets to go to college free for being a single mother
    8. Girlfriend gets $600 a month for food stamps
    9. Girlfriend gets free cell phone
    10. Girlfriend gets free utilities.
    11. Guy moves into home but uses moms house to get mail sent to.
    12. Girlfriend claims one kid and guy claims one kid on taxes. Now you both get to claim head of house hold at $1800 credit.
    13. Girlfriend gets disability for being "bipolar" or having a "bad back" at $1800 a month and never has to work again.
    This plan is perfectly legal and is being executed now by millions of people.

    A married couple with a stay at home mom yields $0.00 dollars.

    An unmarried couple with stay at home mom nets:

    $21600 disability +
    $10800 free housing +
    $6000 free Obamacare +
    $6000 free food +
    $4800 free utilities +
    $6000 Pell grant money to spend +
    $12000 a year in college tuition free from Pell grant +
    $8800 tax benefit for being a single mother
    =$75,000 a year in benefits

After we left you yesterday, two thoughts occurred to us.

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First, when you distill the zombie issue down to its heady fumes, it comes to a single question: do you give or take?

Yesterday, we mentioned our mother. She retired in 1988. She's been living with us (most of the time) and collecting Social Security ever since. But she has always contributed more to society than she took from it - in childcare, in a warm and cozy presence in the home, in cooking and cleaning for the whole family. Even today, crumpled up from osteoporosis and in need of oxygen, she offers valuable guidance and wisdom. She is a giver, not a taker.

The second thought we had was about ourselves. What are we doing down here? Are we on the run? On the lamb? Ducking, dodging, dreading the problems of the modern world? Are we giving or taking?

The True Reason We Are on a Ranch in Argentina

In the 1970s, after the Nixon Administration changed the money system, your editor was deeply involved in a quixotic, but remarkable, effort to stop the US government from wrecking the country. The US having cut the link with gold - the saving grace of every monetary system since Hammurabi -- he saw the handwriting on the wall. It said: Debt Disaster coming!

As director of the National Taxpayers Union, he worked on two major initiatives to stop this disaster from occurring. One was an amendment to the US Constitution. The 'Balanced Budget Amendment' would have blocked the feds from running deficits except in times of war or national emergency. Thirty-two states approved the amendment, 2 short of those needed to implement it.

Of course, now we see how easily they could have gotten around this amendment anyway: we have a state of war all the time!

The other effort was a lawsuit. On behalf of America's children we sued the US government. Bonner vs. Baker, it was labeled. The Baker was James Baker, US Secretary State. National debt was a tax on future generations, we argued. Laying on this sort of inter-generational obligation amounted to taxation without representation and should be banned. The court threw out our suit.

It was while we were thus engaged in protecting the republic that Ronald Reagan won the election of 1980. We went to his inauguration and celebrated; it appeared that the battle had been won, neither in the courts nor in the states...but in the national election. Somehow, and against all odds, Reagan was a fiscal conservative. He would restore order to America's finances. Or so we believed.

But then, the Republican Party went over to the Dark Side. Under the influence of Dick "deficits don't matter" Cheney and Donald T. Regan, the Gipper ran up some of the biggest deficits in US history. All of this is documented, from the inside, by Reagan's White House Budget Director, David Stockman in his excellent book, "The Triumph of Politics: Why the Reagan Revolution Failed."

That is when we decided that trying to save 'the system' was a lost cause. We decided, instead, to try to save ourselves. We left the National Taxpayers Union and began building a group of independent researchers, analysts and advisors who could help us survive and prosper in what we thought would be a difficult and dangerous world.

As it turned out, the world wasn't so dangerous at all. Instead, it appeared benign. A stock market boom took the Dow up to 18 times its 1982 level. And the Fed's "great moderation" made it appear that the good times were here to stay.

Nevertheless, we persevered. Our message was almost unchanged for 30 years: you can't build a healthy economy on debt. And when things go wrong, you can't fix them with more debt.

That is what we've been saving for 3 decades. And for 3 decades, we have looked like a fool.

But to a growing audience of investors the analysis made sense and the advice made money.

In America, our list of readers and subscribers grew. And in the 1990s we took our message overseas. To England first, then to France. For 20 years, we lived overseas, where we were starting and nurturing satellite businesses. Now, we have offices in 10 countries. We publish in Chinese, Spanish, Portuguese, French and German. And our readership continues to grow. Currently, we have 2.4 million subscribers - more than the Wall Street Journal, the New York Times and Bloomberg put together.

And yet, apart from our readers, few people have heard of us. Your editor has never been a candidate for mayor of New York. Nor for anything else. And if he were, by some fluke, elected to public office he'd claim voter fraud.

He doesn't live in Manhattan or Malibu. His name never appears in the paper. He goes to no 'power' lunches. He attends no board meetings. He hobnobs with no one you ever heard of. Instead, here he is...a nobody...on the high plains of South America, with a group of gauchos, a single lap-top computer, an unreliable internet connection and nothing between him and God but a $12 sombrero.

What gives?

Our experience in Washington left us with a profound distrust of the media, the politicians, and their cronies in the 'private' sector. The whole system is corrupt and self-serving. It turns jackasses into celebrities and makes claptrap sound respectable. YYet, when you are in the middle of it, you can't help it; you start to believe what everyone else believes - mostly guff and bugaboos provided by a dumb, lackey media. After you've read the 50th article about the Fed saved America from Armaggedon, for example, you might even begin to believe it!

In most of life, going along with the popular malarkey is merely pathetic. In financial life, it is fatal.

Let us explain. If you believe that Hillary Clinton is a populist or that Obamacare will make us healthier or endless wars in the Mideast protect us from terrorists, it probably doesn't matter very much. Your life goes on more or less as usual despite these delusions. But if you think the Fed can hold interest rates down indefinitely, or that the burden of debt doesn't really matter, or that present stock market valuations are reasonable and sustainable, you're probably going to lose a lot of money. Not necessarily sooner, but definitely later.

Markets prices reflect delusions too. But never forever. Eventually, markets take a cold, hard look...and adjust to reality. Our business model is simple: we try to take a cold, hard look everyday...and to stay ahead of the markets. Our motto: Sometimes right. Sometimes wrong. Always in doubt.

The simplest expression of our financial and business strategy is something investors call "contrarianism". It is the recognition that you can never really make money by believing and investing in what everybody else already knows. When everyone comes to believe something, it is bound to be fully priced, or overpriced. You can only make money by investing against it, even if it is true.

Often, it isn't true. And that's when you really make money. Of course, there is never anyway to know what is true. But sometimes, if you can keep your wits about you, you can identify what can't be true. That is why you don't make money by investing in truth. You make money by investing against what most people think is true, but isn't. As George Soros says, 'find the trend whose premise is false, and bet against it.'

That is why it is nice spending a few months up here at the ranch. There is much less "white noise" from the media. We have no TV. No radio. No newspapers. No telephone.

Up in the high sierra, we seek no favors. We ask for no recognition. We have no truck with popular fantasies or convenient prejudices.

Maybe we are wrong. Maybe the cronies, the central planners, the zombies and the manipulators are right after all. Maybe you can build a healthy economy on debt. And maybe you can build and secure your wealth by doing exactly what everybody else is doing. Then again, maybe, after 30 years of being wrong, we will be right after all. Stranger things have happened.

In any case, we like being here. The air is thinner here, but clearer.

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.

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