Editor’s note: Today, instead of our usual market commentary, we have a brand-new essay for you from Casey Research founder Doug Casey on the election.

Below, Doug explains why Trump came out on top…and, more importantly, what his presidency will mean for America going forward…


The Trump victory is very good news for the US—relative to a win for Hillary, which would have been an unmitigated disaster. So I’m happy he won.

Will Trump winning mean a real change in direction for the US? Unlikely. Don’t mistake Trump for a libertarian. He has all kinds of stupid notions—torture as official policy, killing families of accused terrorists, and putting on import duties. He has no grasp of economics. He’s an authoritarian. His cabinet choices, so far, are all neocons and Deep State hangers-on. He’s likely to treat the US as if it were his 100% owned corporation.

On the bright side, he has real business experience—although of the kind that sees government as a partner. I doubt he’ll try, or be able if he does, to pull up any agencies by the roots. He’ll mainly be able to set the tone, as did Reagan. But, hey, something is better than nothing.

I’ll talk about the markets next month. In the meantime I think EB is quite correct in his views and recommendations.

[Editor’s note: As you may know, EB Tucker is the editor of The Casey Report, our flagship publication. To read Doug’s insights on the markets before anyone else, click here to sign up for The Casey Report.]

THE POLITICAL FUTURE

A brief word on US political parties. I’ve said for years that the Demopublicans and the Republicrats are just two wings of the same party. One says it’s for social freedom (which is a lie), but is actively antagonistic to economic freedom. The other says it’s for economic freedom (which is a lie), but is actively antagonistic to social freedom. Both are controlled by members of the Deep State.

I still think that’s an accurate description of reality. But, in truth, it’s a little unfair to the Republicans. The creatures who control the Republican Party are one thing—and they were massively repudiated by the victory of Trump. Good riddance. But the people who gravitate towards the GOP are something else. To them, the GOP mostly represents a cultural club they belong to.

Rank and file Republicans don’t have any cohesive philosophy binding them together. They’re just sympathetic to “traditional” values. They like the picture postcard version of America. The 1950’s style “Father Knows Best” family. The world of “American Graffiti”. A house in the suburbs, or a small, neat farm. Thanksgiving dinners with relatives. The exchange of Christmas cards. Going to church on Sunday. The husband having a job that allows him to support the wife and kids. Chevrolets and Fords. A relatively small, non-predatory government. A friendly neighborhood cop. A basically decent and stable society, which doesn’t tolerate crime, or overly outlandish behavior, where social norms are understood and observed.

You get the picture. It’s a cultural thing, not an ideological or political construct. Unfortunately, it’s no longer a reality. It’s more and more just an ideal, about as dated as a Norman Rockwell painting on the defunct Saturday Evening Post.

The Democrats are quite different in outlook. They see themselves as hip and sophisticated, and see traditional values as “square”. They’re for globalism, not American nationalism. Forget the clean cut Mouseketeers; the fat and loathsome Lena Dunham is the new role model. Political correctness rules. White men are automatically despised. Black is beautiful. Women are better than men. The very idea of America is in disrepute, and held in contempt. Multiculturalism overrules home-grown values. Etc. Etc.

You’ll notice that there was very little discussion about policy in this election. It was almost all ad hominem attacks, mostly pushing emotional hot buttons, not intellectual points. It’s all about a culture clash. It’s a non-violent civil war. These two groups no longer have very much in common. And they don’t just disagree, they hate each other.

Is a real civil war possible? Unlikely. The electorate is too degraded to actually get off their couches to fight, apart from the fact few know how to use a gun any more. Besides, 25% of the US is on antidepressants or other psychoactive drugs; they’re too passive to want radical change. Almost half the country is on some form of the dole; they fear having their doggy dishes taken away. More than half the country is obese; fat people tend to avoid street fights. The median age in the US is 38; old people don’t usually get in fights. Anyway, everybody lives on their electronic devices, not the real world.

You’ll notice that voting for Trump and Hillary broke along cultural lines. The Republicans won the rural areas (which are dropping in population); the Democrats won the cities (which are growing). The Reps are white (and becoming no more than a plurality); the Dems have most of the so-called “people of color”, who used to be called “colored people” (and are becoming a majority). The Reps did better with males; the Dems better with females, who tend to see the world in softer and gentler shades. The Reps are favored by native-born Americans; the Dems are favored by immigrants, who often have very different values. The Reps represent the diminishing middle-class; the Dems represent the growing underclass. The Reps did better with older people, who are on their way out; the Dems did better with younger people, indoctrinated by academia and the media, who are on their way up.

None of this looks good for the future of traditional American culture. In fact, Hillary won the popular vote. That means, demographics being what they are, the Republicans are in more trouble next time. With current immigration and birth patterns, the constituency of the Democrats should gain about 2% every four-year election cycle in the future. Even more important, as we leave the eye of the storm that started in 2007, and go into the trailing edge of the economic hurricane, the Trump administration will be blamed. There will, therefore, be a radical reaction away from what it’s believed to represent in 2020.

It used to be the Reps and the Dems differentiated mostly on ideological grounds. Now it’s much more on cultural grounds. Allow me to identify the elephant in the room, and spell out the real nature of the Democratic Party.

The Democratic party is a cesspool filled with leftist social engineers, academics, busy-body pundits, the “elite”, cultural Marxists, race baiters, racial “minorities” who see race as their main identity, radical feminists and LBGT types, entitled underachievers, statists, the soft-headed, the envy-driven, the stupid, professional losers, haters of free markets, and people who simply hate the idea of America. I can’t imagine anyone of good will, or even common decency, being a member of today’s Democratic Party. It needs to be flushed. But it will only get stronger in the near future, for many reasons.

But it’s an honest party—they generally say what they believe, even if it’s repulsive to anyone who values things like liberty. Interestingly, there are no Dinos—unless they’re Stalinists or Maoists who think the others aren’t going far enough. The party has absolutely no redeeming values.

A real battle for the soul of the country is shaping up. But I fear it won’t be heroic, so much as sordid. The knaves versus the fools. The Dems are the evil party, but the Reps are just the stupid party.

Why? Trump and the Trumpers have no ideology except a vision of a vanished world. They’re understandably angry, but don’t know what to do about it. They have no real program, except to say the Dems have gone too far. No coherent philosophy, just a nebulous belief that the Democrats are wrong. They’re justifiably fed up with the Establishment that gave them non-entities like Dole, McCain, and Romney.

Why did Trump win? Two reasons.

First, “Cultural Americans” know that their culture is dying, and their standard of living is declining. They sensed—correctly—that this would be their “last hurrah”, their last real kick at the cat. Trump is likely the last white male President. Unless a rabid statist like Tim Kaine is elected in 2020, with promises of a new and more radical New Deal. Or ongoing wars tilt the odds towards a general, most of whom are still white males.

Second, don’t forget that Trump wasn’t the only protest candidate in the primaries. There was Bernie. His supporters know that Hillary and the Dem insiders stole it from him, and they’re still very unhappy. Many abstained from voting for Hillary because of the theft. A few probably voted for Trump out of spite. Or because they wanted to burn the house down. Nobody says this.

Perversely, they’ll get their wish. The Greater Depression will deepen under Trump, even if he makes the right moves. Which will play into the election of someone from the Democrat cesspool in 2020. So maybe the Trump victory isn’t such a good thing after all.

But let’s look at the bright side. All things considered, we’re in for some wonderful free (kind of) entertainment.


Editor’s note: Every month, Doug shares his unique insights in The Casey Report, our flagship publication. If you sign up today, you’ll get complete access to all our archived content, including recent essays by Doug on the Greater Depression, the migrant crisis, and technology. You’ll also receive actionable advice to help you protect and grow your wealth during these difficult times.

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A Wonderful Vehicle to Hedge Against Credit Defaults

Editor’s note: Today, we have another essay from Stansberry Research founder Porter Stansberry.

If you’ve been reading the Dispatch, you know Porter thinks the U.S. is headed for a major financial crisis. To help investors prepare, he’s revealing some of his best ideas for free. He’s also put together a list of 30 heavily indebted companies that could implode during the coming crisis.

In the essay below, Porter explains why these vulnerable companies could soon start “spiraling toward bankruptcy.”

(The following essay was published on November 10, 2016, in The Stansberry Digest.)


From Porter Stansberry, founder, Stansberry Research

***Today, we continue on our credit-default cycle theme with an eye toward actual, real-time business examples…

So if you’ve grown weary of our macroeconomic explanations about Austrian economic theory or “negative multipliers,” don’t worry. What you’ll find below is the “nuts and bolts” of how you can put these theories into practice.

Before we begin, one word of warning. The examples I (Porter) give below may or may not be included in our initial version of “The Dirty Thirty” that we will publish in the first issue of Stansberry’s Big Trade next week.

I’m not trying to be coy. The Dirty Thirty is a market-based set of corporate targets. It’s a list of the 30 worst corporate credits that have the most equity value and the cheapest long-dated put options.

Naturally, that is going to change a little from month to month. The fundamentals of these companies probably won’t change much, if at all. But the market prices and equity values will. Thus, our list will change, too.

***Our core premise is the marginal utility of debt…

As companies take on excessive amounts of debt, sooner or later, their margins collapse and they begin spiraling toward bankruptcy. Why? Because few businesses actually have any real advantage in regard to access to capital. It’s never just one business that “levers up.” Instead, bankers visit every company in the sector. And, as production increases, profit margins always erode substantially.

Think about what happened to the onshore oil drillers over the past five years. As an industry, these companies borrowed $500 billion in the corporate-bond market. And guess what? Production soared, which sent oil prices crashing. Now, the sector has tons of debt… but much less ability to service it.

A little borrowed money, given to a few companies, would have greatly increased their profits. A lot of borrowed money, given to virtually every company in the sector, has seen profits almost completely wiped out. And that has happened in a lot of businesses, not just the oil patch.

***A few easy examples…

Over the past 30 years, the car industry has seen tremendous competition and an explosion in debt, as carmakers had to finance big contributions to employee pension funds to support hundreds of thousands of retired workers. Those trends already bankrupted General Motors (GM) and Chrysler (FCAU). They will soon bankrupt Ford (F).

Since 1987, Ford has borrowed an additional $77 billion, taking total debt to a peak of around $145 billion. To put that in perspective, Ford had its best year ever in 2015, delivering a little more than 2.5 million cars and trucks. Thus, the company has been carrying almost $60,000 in debt per vehicle sold!

All of this capital and record volume hasn’t improved Ford’s profitability. Operating margins are half of what they were 30 years ago (5% versus 10%). And don’t forget, from 2006 to 2009, Ford was losing money on every car it sold. What has changed lately is a huge increase in demand via subprime auto finance. My bet is, as subprime auto financing shuts down because of rising default rates, Ford’s volume will collapse by 15%-20%, and it will begin losing money again. Sales fall, but debt burdens don’t change.

Here’s an example that will probably surprise you: Avon Products (AVP). Explain how ladies selling makeup door to door requires more than $2 billion in debt. Since 1998, Avon’s debt has increased almost 10 times, from $250 million to $2.2 billion. Meanwhile, operating margins have collapsed from 12% to less than 3%. You see, there’s this new thing called the Internet. And it’s available 24/7 to buy anything you want from the comfort of your home.

Finally… it’s not only the oil firms that have gotten into too much debt. Debt largely financed the massive expansion of pipelines and other energy infrastructure over the past decade.

Want to buy a wind farm in France? Call Enbridge (ENB). It’s a big pipeline operator that is also building solar-energy projects and wind farms… with lots of borrowed capital. Debt has grown by more than 12 times over the last 20 years and now totals $31 billion. Over the same period, operating margins have shrunk from world-class (20%) to pitiful (3%). Maybe someone should tell the board that wind farms aren’t as good a business as oil pipelines.

We are not necessarily trying to short these companies (via put options). They’re just simple examples of how often companies try to overcome competition (Ford), or disruptions to their business model (Avon), or get away from their core business with huge expansions to their debt loads (Enbridge). But as everyone probably knows, it’s a heck of a lot easier to make projections and take loans than it is to earn profits and pay back debt.

Spotting companies that are heading for credit downgrades and defaults is a lot like painting by numbers. You just look for who has borrowed a lot of money and then see if that’s working out for them. Usually, it isn’t.

One more example, for good measure. Precision Drilling (PDS) is an onshore-oilfield-services firm. If you need a hole drilled in the ground, you call these guys. To capture more business, Precision borrowed a ton of money. Debts have grown from $200 million to $1.6 billion over the last 15 years. But lots of other businesses saw the same opportunity… and borrowed money, too. Profit margins have fallen from 10% a decade ago into negative territory today. Precision is losing money with every hole it drills… and trying to make it up on volume. We wish them luck.

 


Editor’s note: By finding companies and industries that have been completely corrupted by unsustainable debt loads, Porter and his team are teaching readers how to hedge their portfolios from the risks of the coming default cycle. They believe that making 20 or 30 times your money in some of these names is likely.

As Porter says, “When you know that a company cannot ever afford to repay its debts, it’s only a matter of time until it defaults. You can either be a winner or a victim when that happens. It’s up to you.”

If you haven’t signed up for the free webinar Porter is hosting next Wednesday, November 16, at 8 p.m. ET, this is one you don’t want to miss. He’ll show you exactly how to make the life-changing gains he sees coming. You can click here to reserve your spot.

Must-See Interview

Doug recently sat down with Porter to discuss Porter’s Big Trade. You can watch it right here: