With the Dow once again over 26,000, we have to wonder…Are stocks really in a bear market?

We thought we passed the peak in October. If so, we can look forward to a long bear market that will take the Dow down to 15,000 or 10,000…or so.

And between the time it takes stocks to work their way down…and the time it takes them to recover…most of us probably won’t live to see them at this level again in our lifetime.

But if the Dow continues to rise…well, who knows?

Dow theory

The idea of big, long market sweeps comes from Dow Theory, as interpreted by Richard Russell. Regular readers of these pages will know this as the ‘Primary Trend.’

It is very useful from an allocation point of view. You know that stocks will be cheap at some points…and expensive at others. And between ultimate highs and lows will be long movements, taking many years.

So, you stick to the basics, buying and holding when stocks are cheap and becoming more expensive…selling and staying out when they are expensive and working their way down.

We developed our own strategy. We compare the level of the Dow to the price of gold. When the 30 Dow stocks can be bought with five ounces of gold or less, we buy stocks. When that level goes above 15, we switch to gold.

It’s not necessarily the best way to invest, but it’s easy to remember. And back-testing our Dow-to-gold model for 100 years, we see you could have turned $1,000 in 1919 to $43.3 million today. Compare that to $17.7 million from a ‘buy and hold’ strategy.

Not knowing any better, we’ll stick with the model.

Waste or disaster

Meanwhile, we are on a long trip, trying to connect the dots between what we see with our own two eyes…what most people believe…and how it affects our financial world. And what we see so far is that:

  1. Every cockamamie public policy dreamt up by America’s activists has been tried elsewhere…tariffs, taxes, soak the rich, coddle the poor; make wars on drugs, poverty, and terrorists; reward the cronies, stimulus, deficits, money printing, negative rates, domestic boondoggles, military bamboozles, price fixing…And the results are always predictable: A waste…or a disaster.
  2. The old ‘us versus them’ is always a scam. People are unique, with thousands of different cultures…hairstyles…religions…hobbies…businesses…prejudices…trades…and financial interests. Playing off one group against another merely allows another group — the one with the real power, the insiders — to gain at the public’s expense.
  3. The US is following policies and programs that have been tried many times before. They will not make America great again. Instead, they merely keep her on the road to calamity…by way of Japan and Argentina.

So, let’s begin with Number 1.


[openx slug=inpost]


Tax the rich

In the last few weeks, the Democrats have come up with several proposals to tax the rich. This marks a big swing away from the anti-tax, Reagan, Tea Party era. Not the proposals themselves, so much as the widespread support for them. The Fiscal Times:

But taxing the rich more remains wildly popular, according to a new SurveyMonkey poll conducted for The New York Times — and nearly two-thirds of voters say the government should try to reduce inequality.

More than 60 percent of Americans, including 51 percent of Republicans, support the proposal by Sen. Elizabeth Warren (D-MA) to introduce a tax of 2 percent on households with a net worth above $50 million.

A slight majority of Americans supports a 70 percent top tax rate on incomes above $10 million a year, as suggested by Rep. Alexandria Ocasio-Cortez (D-NY). Sixty-two percent of Americans — including 87 percent of Democrats and 70 percent of independents — say the government should pursue policies to reduce the wealth gap.

“Nearly two-thirds of Democrats say it is immoral to have an economic system where some people have billions of dollars while others have very little,” The New York Times’ Ben Casselman and Jim Tankersley report.

Why would taxes on the rich suddenly be so popular? Easy…the middle classes think they’ve been cheated. Many thought Donald J Trump would set things right. Now they look to the tax code.

But will tax changes really make people better off?

In France, for example, they have all the taxes you could possibly want. Do they make the economy stronger? Do they create more jobs? Do they make the society more fair? Think so?

Tell it to the gilets jaunes, who have been setting cars on fire! Unemployment is at 9%. The rich are still rich. And the government is still desperate for more tax revenue.

For many years, we filed taxes in France, Britain, and the US simultaneously. The tax systems were so complex — with so many traps for the unwary — that we undoubtedly made costly mistakes. But what we noticed was that, while they were all very different, they were also very much the same.

The US took about 50% (state, local, etc.) of our income, whereas the French were running at about 70%. But the French gave you more for your money — including extensive medical care (which seemed to work pretty well)…and free education for as long as you could stomach it.

If we added what we paid for medical care and college tuition, to what we paid the feds in the US, the result was not so different.

Matter of fairness

AOC and the Democrats say it’s not just the money; it’s a matter of fairness. We don’t know what principle of fairness says you should take more from one person than from another.

And if you look at the European system, which they hold up as a model, you see that while the rich may pay more, so do the middle classes. The sales tax in France is 20%. That is a ‘regressive’ tax, meaning it is a bigger and bigger share of your expenses as your income goes down.

The French try to soften the blow on the poor a bit by lowering the sales tax on food to only 5.5%, but the tax is still a big part of the typical family’s budget.

Which is better? The French system or the US system? If we had a say, we’d go for fewer taxes rather than more. But in both systems, the rich and their lobbyists do a good job of reducing their tax burden. And the poor don’t have any money; in France, as in America, the bottom half pays no income taxes.

That leaves the middle classes to shoulder the burden. And however much you jiggle and jive with the tax system, or switch from direct taxation to debt and inflation, it is not going to make much difference. One way or another, they’re going to pay.

The ‘tax the rich’ proposals are mostly distractions from the essential math. The more the feds meddle, at home and abroad, the more the middle classes are going to pay. Fairness has nothing to do with it.

And it is the money system, not the tax system, that has made the insiders so rich. Neither Republicans nor Democrats are suggesting changing that!

Best in class

But it’s not just the tax proposals; all the public policy proposals, from conservatives, as well as liberals, are bogus. Every one of them is merely another way to squeeze more blood out of the middle class.

How about a ‘Green New Deal’? The French are ahead on that one too. They call it the ‘Transition écologique et solidaire,’ in which they’re supposed to turn away from the internal combustion completely by 2050.

Part of this program includes a hefty tax on gasoline, which prompted the demonstrations you’ve seen in the papers. But it is nothing more than another way to raise taxes, pretending it will make the planet ‘greener.’

Negative rates? Japan has been using them for years. Have you noticed a big upsurge in Japanese GDP? No? And what’s this? Stocks are still down 50%…30 years after the crash? A negative interest rate, too, is just another tax on savers…and another gift to the rich.


Mr Smoot and Mr Hawley tried it in the 1930s. How’d that work out? And today, Gabon, Benin, Central African Republic, and Chad all have tariffs over 10%. Hong Kong, Singapore, Switzerland, and Canada all have either zero tariffs, or less than 2%.

Which group would you like to be a part of, Dear Reader? The average tariff has been coming down for at least a quarter of a century, and now is only 2.59%. Think a tariff war is going to make America great again? Not likely. A tariff is just another tax on consumers…and another transfer of wealth from the outsiders to the insiders who control the government.

And how about stimulus?

Just about every country has tried that. The insiders pretend to boost the economy by weakening the currency. But what really happens is that the feds (and their crony insiders) print as much money as they want, while ordinary citizens’ money disappears in inflation.

Venezuela is probably best in class on that one, with inflation at 1.3 million percent. And how’s the economy doing?

The young are leaving the country as fast as they can get out. Those left behind are desperate, even for something to eat.

But it really doesn’t matter what public policy you choose, there is a scammy precedent somewhere.

‘We’ should do this…says one group. ‘We’ should do that, says another. But don’t expect any of these policy proposals to make America great again. Whatever miracle they claim, the actual result is always a transfer of wealth, power, and status to the elite who make the decisions.

Tune in tomorrow…We’ll look at why the ‘we’ is always counterfeit.



Bill Bonner