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Dow Dope Theory

You being the dope at record highs...

YES, it's time that you always run out of, moans Bill Bonner in his Diary of a Rogue Economist.

You wish you'd spent more time with your children and grandchildren. You wish you'd saved more for your retirement.

You wish you'd invested in stocks 30 years ago. You wish you'd taken the time to learn to play piano or speak French.

But you're out of time...

Our old friend Richard Russell was a devotee of Dow Theory. The theory consists of a series of observations.

For our purposes today, Dow Theory says that when the Dow hits a new high – confirmed by the transportation average – it's time to buy. The "primary trend" is bullish.

Accordingly, we got a buy signal last week. CNBC reports:

"The Dow closed at its first record high since January on Thursday as gains in Apple and a decrease in trade fears lifted the 30-stock index. [...]

"Art Cashin, the director of floor operations for UBS, said the Dow's record should be a bullish confirmation of the high reached by the Dow Transports last week. 'That should be a Dow theory buy signal,' Cashin said. 'According to the theory, the economy is supposed to be improving and therefore, you have six to nine months of a higher stock market.'..."

And who knows? Dow Theory could turn out to be right.

Or we could just be out of time.

Donald J.Trump tweeted a big "congratulations" to the US, as if high-priced stocks were something to be proud of.

But overpricing assets is an invitation to sorrow, not joy. When compared to economic output, stocks today are more expensive than they were even in 1999. Our Dow-to-Gold ratio clearly tells us, too, that it's time to get out of stocks and into gold.

Markets and economies have their youth, their seasons, and their sell-by dates. We celebrate our birthdays, but our remaining time shrinks.

Markets grow old, cranky, and forgetful – just like we do. This bull market on Wall Street has been running since March 2009 – for nearly 10 years. As we see below, it's beginning to forget where it left its keys.

And the expansion of the economy – the recovery from the crisis of '08 – has been going on since January '09. It will hit its 10-year anniversary in just three months, making it a Methuselah of a business expansion – the oldest one ever recorded.

Shuffling and hunched over, it too must be running out of time.

Here in Ireland, a storm blew up a few days ago. The trees bent over. Rain lashed the window panes and rattled the doors. The wind was so strong, it blew a trailer off a cliff, killing a Swiss tourist.

(We went up to check on the roof we put on our barn in the summer. We're pleased to report that it's still in place.)

Alert readers and long-time Diary sufferers will expect us to draw a parallel...

Buying stocks today must be like camping on the edge. And while there might be a thrill in being so close to the wind and water, it may not be worth the risk.

We could also bring up an example – say, Tilray – to show what a mad, mad, mad world Wall Street has become.

After all, Tilray is a dope company. After its CEO appeared on television earlier last week, the stock price nearly doubled. Then, it lost all of those gains within an hour.

Our colleague Chris Mayer reports that, in terms of Dollars, the Tilray spike is likely the largest short squeeze in history.

And while there is a lot of money to be made in weed, perhaps someone needs to remind investors that there's only a lot of profit in marijuana because of the War on Drugs. Make it street-legal, and marijuana becomes like wheat or corn – a commodity with thin margins and no pricing power.

So why would anyone in their right mind pay $22 billion for a $28 million (in revenues) company with margins that are doomed to shrink?

We don't know. But judging from the action last week, investors don't know, either.

One minute, they're looking out on fair skies and weed as far as the eye can see. The next, hurricane-force winds are plastering the plants to the ground, destroying the entire crop.

But today, we eschew easy and obvious metaphors. Instead, we return to where we were yesterday. That is, we return to time.

You can't stretch time. You can't adjust it. The feds can't fiddle it. The Earth turns. Time goes matter what you think.

Looking at time helps us connect the dots. We saw yesterday, for example, how time gets absorbed by the media and politics.

Different Deep State camps fight it out – red versus blue...liberal versus conservative...Kavanaugh versus Blasey Ford – and you're expected to pay attention and take sides. With or against. Us versus them.

But what is really at stake in these squabbles? Are they as phony as the War on Trade...the War on Terror...the War on Drugs...or the War on Poverty?

Are they part of the great circus that takes up our time...and distracts us from what is really going on?

If he had more time to pay attention to it, the typical fellow might feel the hand picking his pocket...and notice how the feds and their phony money have eaten away at his time.

The average person now works about 36 hours a week just to live in the average house, drive the average car, and pay for the average share of government – that's more than twice as much time as he worked in 1971.

But the average workweek in the US is now only 33 hours. So he can't keep up. He falls behind. He has to borrow time from the future.

Debt is time brought forward. If you owe $100 and earn $25 an've committed (used up) four hours of your time that hasn't come yet. The more you owe, the more of your future is claimed by the past. Eventually, your whole life disappears into debt slavery.

The feds now owe $21 trillion. There are 250 million adults in America. But only 150 million of them have real jobs, earning an average of $26 an hour.

You can do the math yourself. But what it tells you is that there are no plausible circumstances in which that debt could ever be paid off.

At a reasonable interest rate (the Fed is aiming for 4%), the typical working person will lose about half a day a week just to service the "national" debt.

But it's impossible. He is already in the hole by three hours a week. He has no time left. All the feds can do is pile up more debt – more claims against his future.

The poor fellow is trapped.

There are not enough hours in his workweek to pay his current expenses (including his share of the government budget).

And the further ahead he looks...the more he sees his time has already been garnished. It's as if his pay were docked to support a child he never had, never saw, and from whom he never got a hug.

And yet, he will work from now until Hell freezes over to support the little bastard.

New York Times best-selling finance author Bill Bonner founded The Agora, a worldwide community for private researchers and publishers, in 1979. Financial analysts within the group exposed and predicted some of the world's biggest shifts since, starting with the fall of the Soviet Union back in the late 1980s, to the collapse of the Dot Com (2000) and then mortgage finance (2008) bubbles, and the election of President Trump (2016). Sharing his personal thoughts and opinions each day from 1999 in the globally successful Daily Reckoning and then his Diary of a Rogue Economist, Bonner now makes his views and ideas available alongside analysis from a small hand-picked team of specialists through Bonner Private Research.

See full archive of Bill Bonner articles

Please Note: All articles published here are to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it. Please review our Terms & Conditions for accessing Gold News.

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